Family offices, HNWIs could drive mid-market dealflow

Speaking at PEI's virtual IR, Marketing & Communications Forum on Wednesday, a buyer said GPs may start to facilitate exits for LPs that want to streamline their portfolios.

Non-institutional investors could emerge as a key source of mid-market dealflow as a result of this year’s pandemic, a conference has heard.

Speaking on a panel for sister publication Private Equity International‘s virtual Investor Relations, Marketing & Communications Forum on Wednesday, an executive from a US-based secondaries firm said that smaller limited partners are recognising they might be “stuck in some funds for a while” as a result of coronavirus and are looking at ways to reduce the cost and effort of administering their portfolios.

It may even be in the best interests of GPs to facilitate the exit of LPs, he added.

“The GP is motivated to say, ‘If you’re not going to be working with me in the future, could we try to sell your position and find a secondary buyer who could perhaps provide staple financing to the next fund?'”

Improved second-quarter net asset values should make pricing more attractive and deals more likely, he added.

Secondaries Investor reported in May that smaller limited partners were likely to account for a higher proportion of sales brought about coronavirus. Most banks, insurance companies and large pensions have reduced or diversified their alternatives exposure since the last crisis.

“[For] the bigger guys, at this end of the market, it’s ‘This could be great but we are not going to do a $5 million deal,’” said one New York-based buy-side source with a firm that manages sub-$500 million funds.

Family offices, endowments and foundations accounted for a combined 20 percent of the $18 billion of secondaries deal volume recorded in the first half of this year, according to data from Greenhill.