Making predictions is a dangerous business, but the team at Secondaries Investor does not shy away from danger. Here are some stories we think will take up some column inches this year.
Deals struggling to get done
Going into 2019, the public markets are looking volatile. Fears of a trade war and tightening monetary policy in the US are among several factors pushing share prices down. If the situation worsens, it is sure to affect company valuations and, by extension, pricing on the secondaries market. There could be positive impacts; many buyers will be happy to see the price of plain vanilla portfolios come down. But disagreements over pricing and reference dates are likely to be a feature.
Secondaries trades in GP interests
Okay, so we’ve predicted this would happen before. But 2019 really feels like the year in which funds of firms look to the secondaries market to offload stakes in private equity management companies. The secondaries market will be swimming with dry powder, which should drive creativity. And buyers aiming to diversify their holdings, possibly in anticipation of an economic downturn, could benefit from accessing a GP with various funds and a broad array of underlying assets.
Strip sales from LPs
The secondaries market has evolved at a rapid pace in recent years and there’s nothing to suggest 2019 will be any different. We’ve already seen general partners carry out successful strip sales as a way of de-risking their portfolios, Warburg Pincus being the best example. Market sources believes that 2019 could be the year when limited partners try the same thing. By selling off part of their newer fund investments, including unfunded portions, LPs can mitigate against any potential liquidity issues if the market cycle breaks.
GP-leds to fall out of favour with LPs
Katja Salovaara, senior portfolio manager at Ilmarinen Mutual Pension Insurance Company, had some strong words about GP-led deals when we were canvassing the market for 2019 predictions. She told Secondaries Investor that in many cases they are “trying to solve a problem that doesn’t exist” and, worse, can reward GPs for failure. Will more LPs start to express similar views in 2019? They might, particularly smaller outfits that don’t have the time and resources to carefully consider all the proposals that cross their desks.
Do you strongly agree or disagree with any of the above? Are there any other highly pertinent points worthy of mention? If so, get in touch – firstname.lastname@example.org.