When Australia’s Continuity Capital Partners closed its first fund for New Zealand-only investors seeking secondaries opportunities in Australasia in April, partner Ovidio Iglesias saw it as a positive sign for the region’s market.
“Fifteen years ago, secondaries was less understood and there were a lot fewer people in the market,” Iglesias says. “Now, there’s a whole bunch of folk prepared to do the work and to understand the holdings involved.”
Half of the NZ$46 million ($32 million; €22 million) Continuity Capital Private Equity Fund No2 will be invested in secondaries. The vehicle exceeded its NZ$30 million target.
By global standards, it is an tiny amount raised by a relatively small yet respected fund of funds investor. What it signals, though, could be vital to the health of the secondaries market in Australasia – an eagerness even among smaller managers in far-flung New Zealand to have secondaries as part of their portfolios.
The Australasian secondaries market is estimated at between A$1.5 billion ($1 billion; €1 billion) and A$3 billion, or 5 percent to 10 percent of the region’s A$30 billion primary private equity market.
Recently, deals have been heavily skewed toward large portfolio disposals by pension and sovereign wealth funds who are keen to trim their holdings, reduce the number of external managers they deal with, and cut their costs of investing.
In such a small market, overall volumes in any single year can change dramatically with one or two large deals, such as Australia’s Future Fund’s offloading of $1 billion of private equity stakes to the Canada Pension Plan Investment Board in February, and pension Sunsuper’s sale of a A$300 million portfolio of stakes to Partners Group.
Sovereign wealth fund NZ Super has also been a busy seller, bringing a portfolio of around $500 million worth of real estate fund stakes to market, some of which was picked up by Partners Group.
For Partners, it was another notable deal in a secondaries market they have been active in since the 2007-8 global financial crisis. The firm’s head of investment solutions in Australia, Martin Scott, says that supply in Australasia had been tightening recently, resulting in rising prices.
“A lot of transactions are closing much closer to net asset value as there’s not a lot of volume,” says Scott. “We are still closing on quite a few deals but they’re smaller transactions and we’re quite happy with that.”
As well as managing or exploiting the influence of currency values on any particular deal in Australasia, another challenge is dealing with the high level of transparency required by the market.
“It means a lot of trustee boards are very hesitant to sign off on a discount. Even if it’s the right thing to do for their fund, it could be seen by their members as a bad call,” says Scott. “That’s why being able to work with them to find a solution, maybe one that spreads out over several years, is often where the answer lies.”
For smaller investors who are unable to take part in the large intermediated international transactions that global players like Partners can, opportunities will only grow, says Continuity’s Iglesias. While the market may be currently skewed toward large portfolio divestments from institutional investors, it is still a sign of progress.
“None of those groups would have attempted the types of deals we’re seeing now 10 or even five years ago,” says Iglesias. With a generation of funds raised in the early to mid-2000s beginning to mature over the next few years, sellers in the region are becoming increasingly confident about being able to offload stakes, particularly for tail-end and fund of funds positions, he says.
“I think we’re seeing a maturing of the market and the confidence of holders of positions to put those positions to the market when they see an opportunity to sell and to sell well.”