Five questions with Adams Street’s secondaries partners

Jeff Akers and Pinal Nicum of Adams Street Partners discuss their latest fundraise, the rise of SMAs and the limitations of relying on leverage to generate returns.

In June Adams Street Partners held a $2 billion final close on its latest secondaries programme after around two years in market. The Chicago-headquartered investment manager raised $1.05 billion for Adams Street Global Secondary Fund 6 and the remainder in separately managed accounts.

Partner and head of secondary investments Jeff Akers and partner Pinal Nicum share their views on the fundraise and the state of the market.

This secondaries programme is slightly larger than its predecessor, which raised a little under $2 billion including SMA capital. Can you talk us through the rationale behind the size?

Our rationale for this fundraise was the same as with our prior secondaries fundraises at Adams Street Partners; we seek to match the capital we raise to the market opportunity we see ahead. We believe we are properly capitalised to pursue our investment strategy, and the amount we’ve raised is well aligned with our projected deal flow volumes.

How did you find the fundraising process this time around? In what ways was it harder or easier?

We’re finding that it’s not a question of harder or easier, so much as an evolution in how the secondaries market operates. Our strategy of targeting lower leveraged, growth-oriented assets managed by best-in-class managers resonated very well with new and existing institutional investors, especially given broader concerns that many investors have regarding the potential for increased economic or market volatility in the coming two to three years.

Given our focus on being selective and choosing fund managers where we have high conviction, we were able to distinguish ourselves from other secondaries buyers that are trying to provide beta market exposure. We were also able to demonstrate that our thematic, proactive approach allows us to take advantage of market dislocations and also make high-conviction picks over an extended period and across market cycles.

This programme has a large SMA component. Why did separate accounts prove so popular and were you surprised by that?

In recent years, a greater percentage of investors have chosen the separately managed account route rather than investing through a traditional commingled fund structure, often to allow for greater customisation. Many investors ask about SMA structures if they have a need for a tailored mandate, and Adams Street has been successful at addressing the unique needs of various institutional investors. While the commingled fund structure continues to work well for many LPs, SMAs are great in terms of allowing us to meet the full breadth of LP demand. At the same time, it can add a layer of complexity in raising capital.

What will be the likely mix of LP stake sales and GP-led transactions with this fund? Are there any areas that look especially attractive?

We are ultimately focused on selecting high-quality funds, whether it’s through LP stake purchases or GP-led transactions. However, we have seen a significant increase in GP-led opportunities over the past few years, and we have closed multiple GP-led transactions recently. We see this as a positive development for our proactive secondaries strategy, and we expect the proportion of GP-led situations to rise further over the course of the fund.

Geographically, we expect the US and Europe to continue to be our largest markets, however, we have noticed a substantial uptick in the volume of Asian dealflow in the past three to four years. This is a positive sign, and given that Adams Street has four offices in Asia, we are well-positioned to take advantage of the maturing private equity climate in the region.

How is the point in the cycle affecting your investment approach?

We believe pricing remains high, particularly in transactions where the buyers are focused on providing beta exposure and rely on leverage to generate returns. Adams Street’s strategy is to steer clear of such situations, and focus instead on seeking out assets with strong growth potential, less leverage, and less cyclical end-markets. Fortunately, the pool of funds we are invested in through our primary programme is heavily-weighted to exactly these types of assets. Around 80 percent of our secondaries portfolio is in Adams Street Primary managers, which speaks not only to the quality of what we are buying in our secondaries transactions, but also how the depth of our GP relationships drives our opportunity set. By focusing on high-quality fund managers and areas where we have high conviction and being less reliant on leverage for returns, we feel our strategy and portfolio will be well positioned throughout market cycles.

Jeff Akers is responsible for all aspects of Adams Street Partners’ secondaries business and is principally focused on leading North American secondaries opportunities. He is a member of the firm’s executive committee. Pinal Nicum leads the firm’s European secondaries business and is developing its offering in Asia and the Middle East. He previously spent nine years at Coller Capital.