Credit Suisse: real asset secondaries are nascent – exclusive

Real estate represents the largest share of real assets secondaries in terms of volume, but the market is still nascent according to the latest secondary market update from Credit Suisse, seen by Secondaries Investor.

“The growth in the real estate secondaries market is one of the key trends in 2014,”  said Mark McDonald, director in the private fund group at Credit Suisse in London. “Credit Suisse has advised on a number of real estate secondaries deals this year and what we found is that time can be a bit of a healer. If you’re investing in underlying real estate funds that aren’t performing from a return or distributions to paid-in perspective then holders of these positions are much more open to transactions.”

Real estate secondaries transaction volume has continued to reach annual highs during the last few years, driven by several factors. Secondary prices for real estate assets have recovered from historic lows in 2009 and 2010, particularly in the US and Northern Europe.

Real estate fund managers have also continued to resolve issues with distressed assets, are more realistic on pricing and are open to the various structural solutions the secondary market can offer, McDonald explained.

“Investors are more open to liquidity where they don’t have the patience to wait for value or can lock in a return. They are cashing out and providing an opportunity for replacement limited partners on the secondaries side.” 

Substantial primary capital raised for private real estate funds from 2004 onward (particularly in 2006-2008) has also increased secondaries activity as these assets move through the system.

“When considering primary fundraising trends in different sectors, it’s clear the secondary market really gets going seven to 10 years after healthy primary market conditions. Real estate is a prime example of this trend,” McDonald said. 

Recent real estate secondaries transactions reported by Secondaries Investor include Landmark’s acquisition of stakes in 2008-vintage Arminius Real Estate Opportunity Fund and 2007-vintage Europa Fund III. Both stakes were purchased from The Regents of the University of Michigan.

Meanwhile, activity in the infrastructure secondaries market remains limited because its primary market is less mature, the quarterly update revealed. Despite the market’s youth, stakes in best-in-class real assets funds are trading at net asset value or in excess of NAV. However, garnering interest for these types of stakes from traditional secondaries funds has been difficult.

Last week Secondaries Investor reported the corporate pension plan of car manufacturer Daimler sold its stake in Macquarie European Infrastructure II for an undisclosed amount, and in November it was announced that the New Mexico Educational Retirement Board was considering selling one of its infrastructure fund positions.