Buyers are still willing to pay up for the right funds despite the decline in average pricing across the secondaries market, according to data from Palico.
The $2.88 billion, 2015-vintage Francisco Partners IV received a successful bid of 114 percent of net asset value, topping a list of 65 LP stake transactions to take place in the second quarter, according to the stake trading platform’s Secondary Pricing Report.
The vehicle, managed by tech investor Francisco Partners, was followed by healthcare-focused, 2016-vintage Linden Capital Partners III, which sold at 112 percent of NAV. Two funds tied for third spot: 2017-vintage CVC Capital Partners VII and Union Square Ventures 2014 both sold for 111 percent of NAV.
“The primary fundraising market is highly competitive right now and this is motivating sellers in the secondary market as they reallocate and rebalance their assets,” said a Palico spokesperson. “More LP positions changed hands at or above par over the past three months compared with Q1, which may come as a surprise given the macro environment. Rather than being a risk-on signal, we believe there is greater manager selectivity on the part of buyers in recent weeks, who are willing to pay for quality.”
Last month, Francisco Partners announced it had closed on nearly $17 billion for two vehicles, including its latest flagship fundraise. Francisco Partners VII raked in $13.5 billion while Francisco Partners Agility III, which targets smaller technology deals, closed on $3.3 billion.
According to performance data from California State Teachers’ Retirement System, Francisco Partners’ fourth fund had delivered an internal rate of return of 35.95 percent as of 30 June.
Pricing on Palico’s platform rebounded quarter-on-quarter. Sixty percent of the 65 fund interests sold did so above par, at an average price of 105 percent of NAV. The remaining 40 percent traded at an average discount of 91 percent. In the first quarter, as much as 58 percent of deal volume was discounted, with 42 percent priced at a premium.
This stands in contrast to early market-wide pricing estimates for the first half. Jefferies put average price for LP-led deals involving buyout funds at 91 percent of NAV, down from 97 percent at the end of 2021.
The first half of 2022 overall has been “remarkably robust,” Palico’s spokesperson said, but added, “there may be a slowdown in deal volume over the second half of the year as pricing becomes a sticking point and buyers closely scrutinise GPs’ NAV revaluations.”