With supply outstripping demand, the pendulum of negotiating power has swung in favour of buyers on GP-led transactions. So said four senior secondaries buyers with blue-chip private equity, fund of fund and secondaries names, speaking at a Chatham House-rules event on Wednesday afternoon in London, echoing a trend we highlighted earlier this year.
Setting the scene, one of the buyers said nine to 12 months ago, the pressure was “absolutely” there to get transactions done quickly in a seller’s market. Another added: “If you said you needed more time or more information, [the GP] said ‘no’. They would just carry on with someone else.”
Today, buyers are in no rush to deploy capital. Dealflow was frenzied in 2021 and secondaries transaction volume records were broken; combine this with a tightened fundraising market for private markets strategies more broadly and it means the pressure to transact is diminished. Buyers queuing to pick up a process where another left off are in shorter supply and will probably make the same requests for more time or information.
Happily for the four panellists – and they would say this, wouldn’t they – this means they are able to request better access to information and increased one-on-one time with GPs, even if managers may be opposed.
GPs are still pushing back at the start of continuation fund transactions, the panellists said, telling buyers they are unwilling to grant them access and information based on old precedents set last year. But “the world has changed”, one buyer said, adding all parties need to reduce risk, so GPs have to provide access to more information, as well as put in the time to work through the transaction with buyers.
“As investors, we want to build a relationship for the long term … opening up and letting the investor and the buyer in and building a relationship in all of those ways actually changes the outcome, reduces the risk,” the buyer said.
Although transactions take longer as a result, it’s a positive for buyers. Those GPs that choose to play ball could see stronger pricing out of these transactions as a result. For those that aren’t willing to open their diaries and books, be prepared to have sellers turn their backs.
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