Has the secondaries market reached a peak?
JA: We think there is more room for growth. The main thing we look at is the turnover as a percentage of overall NAV. It still remains extremely low relative to any other asset class. The GP-led trend is becoming more popular because it makes it easier and more transparent for LPs to transact in their portfolios. The easier it is for people to transact, the more they will do it.
Secondaries funds have diversified their mandates in recent fundraisings and are very interested in doing other types of transactions. We’re doing more stapled transactions, a lot of principal groups backed by financial institutions or family offices are spinning out, and we’re seeing people do preferred equity deals so that they don’t have to sell the upside. The market is broadening in terms of the type of offering.
Credit Suisse appointed you to co-head the secondaries team, and you added Sameer Shamsi from Evercore. What are your thoughts on staff changes in the market and how is the group positioning itself?
CA: We’ve seen a lot of movement [of staff] in the market both on buy- and sellsides. It was an interesting topic of discussion for 2017 and we see this as a sign that the space is maturing. It’s nice to see the market evolve from what was once a cottage industry to today, a close to $50 billion market. Turnover is just a natural part of that – I see it more as an evolution rather than a revolution and something that’s healthy and important as any market continues to grow and develop.
Our positioning has remained consistent – we focus on quality over quantity; we aren’t and have never been a volume shop. That applies to both the size of our team as well as the mandates we take on. We’ve executed over 70 successful GP transactions since inception, which we think is the most of anyone in the space. In terms of our team, we’re part of the broader private fund group which has over 70 professionals globally.
Which regions are you most excited about?
JA: We’ve seen some exciting trends in emerging markets in the last couple of months. Pre-crisis, there wasn’t that much invested in Asia and emerging markets, and there was a huge amount raised for those regions following the financial crisis. Now, that’s starting to translate into market opportunities in secondaries.
The private fund group has advised on $2.5 billion of secondaries transaction volume in emerging markets, including successfully executing five such transactions in 2017. Additionally, we have raised $21 billion of primary commitments in emerging markets.
How seriously should buyers take emerging markets?
CA: In our experience, when we have brought these transactions to market we have secured the full time and attention of the buyer universe – so we think buyers are taking them seriously already. Certain geographies in emerging markets aren’t for everybody, but we do think buyers have really started to focus on markets other than the US and Western Europe.
We closed three deals in Asia in 2017 and we are seeing an increasing trend in those markets opening up, which is nice. It is something people have been waiting for to happen.
Why did Europe dominate in terms of GP-led deals last year?
JA: I think it’s a coincidence. It just so happened that one large-cap European GP moved first. It’s natural that a couple of others followed. It’s clear from our conversations with GPs that everybody, irrespective of geography, is now starting to ask “how can I capitalise on this trend for my own LPs?”
CA: Historically we had seen more GP-led transactions occur in North America than in Europe, dating back five-plus years. The circumstances and motivations around those transactions were different to the transactions getting completed today. Geographically, European GPs may have been a little bit removed from those earlier deals, and as the market has evolved many were waiting, thinking about things, and coincidentally we happened to see a number execute transactions last year.
Some GP-led deals have happened without an advisor. Does that worry you?
JA: In the GP-led side, it’s really the exception rather than the rule. The scope for an advisor to add value to these types of transactions is extremely high because the portfolios are a lot more concentrated, so it’s more M&A-like in nature, and the situations tend to be more complex. In a well-run process, the advisor has the ability to demonstrate to buyers why they should pay more which results in a better price for sellers. We also have the technology and structuring expertise having done over 70 GP-led transactions, including over 30 European and emerging market deals over the years. We can add a lot more value than you can in LP portfolio sales which tend to be much more commoditised.
Jonathan Abecassis and Chris Areson are co-heads of secondary advisory in Credit Suisse Asset Management’s private fund group.