Ex-Ardian’s Gombault: There’s a generational buying opportunity in secondaries

Secondaries funds of vintage 2019-21 will see significant impacts on their internal rates of return, Vincent Gombault has warned.

There’s a once-in-a-generation buying opportunity around the corner in the secondaries market, according to Ardian’s former fund of funds head.

Writing in his latest quarterly newsletter, seen by Secondaries Investor, Vincent Gombault says he expects a wave of deals to flood the market as early as later this year, with secondhand stakes in private market funds likely to provide the most attractive opportunities.

“From my experience, the current period is one of the most challenging in the past decade and I expect it to take at least 12-18 months to readjust,” Gombault wrote. For the secondaries market to return to higher levels, there needs to be a resurgence in full private sales to strategic or trade buyers – the cornerstone of liquidity in private equity, he added.

Secondaries deal volume fell roughly 18 percent last year compared with the prior period, with $108 billion in trades, according to estimates from Jefferies.

To Gombault, GPs holding onto assets for longer due to a dearth of exit routes, coupled with the higher cost of debt, means funds of vintage 2019-21 will see significant impacts on their internal rates of return. Secondaries buyers who acquired portfolios of funds at par or a premium to net asset value over the past three years will find out they’ve paid expensive prices, he added.

Gombault had previously predicted annual secondaries market volume would hit $2 trillion by 2030, driven by the growth of private assets under management, an increase in secondaries market churn and the potential for the market to offer even greater liquidity than public markets. This was based on an assumption of a roughly 6-8 percent turnover rate of a private equity industry with $26 trillion in assets under management.