General partners have passed pensions and sovereign wealth funds to become the largest sellers on the secondaries market as sponsors have sought to proactively manage their portfolios.
GPs accounted for 32 percent of sellers last year by value, according to Greenhill’s latest Global Secondary Market Trends & Outlook report. Pensions and SWFs accounted for 29 percent of volume.
“Fund sponsors continue to have an increased interest in proactively accessing the secondary market as a viable liquidity tool for their underlying LPs versus historically being reactionary to LP trades,” Stephen Sloan, head of Greenhill’s secondaries advisory practice, said in a statement.
GP-led deals jumped 71 percent to $24 billion of total deal volume. They accounted for almost 40 percent of the $74 billion secondaries market, Greenhill noted.
Pushing this growth were eight GP-led transactions larger than $1 billion. These include Nordic Capital’s restructuring of its 2008-vintage buyout fund, involving €1.5 billion in net asset value; energy-focused Lime Rock Partners’ restructuring of its 2006-vintage fund; and Providence Equity Partners’ stapled tender offer on its 2011-vintage vehicle, as Secondaries Investor has reported.
Greenhill cited three characteristics found in successful GP-led deals. Firms should have a clear rationale for undertaking a process, such as generating liquidity, crystalising carried interest or de-risking their portfolio; processes should be transparent and provide LPs with multiple options; and GPs should use transaction structures and set terms that best align themselves with potential buyers and LPs.
The firm estimates that deals over $500 million, including GP-led transactions, accounted for almost 60 percent of total volume last year.
Greenhill also found that:
- There is $192 billion in near-term dry powder, including leverage. This record amount of available capital will continue to drive demand, pricing and volume, and it provides more than two-and-a-half years of transaction value at last year’s level.
- Pricing dropped 1 percentage point to 92 percent of NAV for average high bids. This was driven by a continued supply of 2008 and older vintages which have “limited upside and full valuations”.
- Venture funds were the second-most traded after buyouts, accounting for 29 percent of volume. Sellers wanting to lock in returns and reduce exposure to certain managers helped drive VC secondaries up 7 percent.
- Infrastructure accounted for almost 20 percent of GP-led deals, the second-largest strategy after buyout (56 percent).
See an interactive map of some of last year’s GP-led deals here.
– Alex Lynn contributed to this report.