Greenhill’s 2020 market report in five charts

Infra topping the pricing chart and the rise of mosaic sales are two of the trends outlined by Greenhill's 2020 secondaries market review.

Secondaries Investor had an early look at preliminary findings from Greenhill‘s secondaries market report for 2020.

The investment bank estimated total deal volume for the year at $60 billion, indicating a dramatic bounceback from just $18 billion recorded in the first half. It registered $26 billion of sponsor-led secondaries transactions, the same in dollar terms as 2019 and 14 percentage points higher as a proportion of total volume.

Here are some other key findings from the full report:

Capital overhang level nears eight-year high

The ratio of near-term available capital to invest in secondaries to last-12-months deal volume is 2.9x, according to Greenhill. This is the second highest level since 2013, exceeded only by the 2015 figure of 3x. The figure includes equity dry powder, near-term fundraising and available leverage.

“We view the market as being relatively balanced between supply and demand,” the firm’s co-head of European capital advisory Bernhard Engelien said. “The overhang ratio will likely drop with the growth in both GP-led and LP portfolio supply we expect in 2021.”

Infra tops the pricing table

The average price of a stake in an infrastructure fund (excluding energy) was 93 percent of net asset value in 2020, compared with 89 percent for a buyout fund – the first time since at least 2013 that infra has priced higher.

Buyer demand for core and opportunistic strategies was strong but supply was constrained, as pension funds and life insurers opted to hold on to their assets, pushing up prices, according to Greenhill’s Engelien.

“Infra assets offer stable and predictable cashflows, which are in demand at the moment,” he added.

Mosaic sales have strongest year since GFC

The proportion of portfolio sales that employed mosaic solutions – in which several buyers buy subsets of a portfolio – hit levels not seen since 2008, Greenhill reported. Just over 41 percent of portfolio sales last year used mosaic solutions, compared with 34.8 percent the year before, indicative of a “flight to quality and safety”.

Selling a portfolio this way delivers an average price uplift of “5-10 percent of NAV” while mitigating the risk of not being able to sell an asset, the advisor noted.

Buyout increased its share of volume

Buyout funds accounted for 65 percent of total GP-led volume in 2020, up 10 percentage points on 2019, Greenhill noted. Growth and VC accounted for 19 percent of GP-led deals, an increase of 3 percentage points year-on-year, driven by the pandemic resilience of sectors such as technology. The notable decline was in real estate, which accounted for 6 percent of GP-led volumes last year compared with 9 percent the year before.

By region, GP-leds became more popular outside of the main three geographic areas, with “rest of the world” accounting for 8 percent of GP-led volume by geography, compared with 0 percent in 2019.

Single-asset deals rise, multi-assets fall

GP-led deals centred around a multi-asset continuation vehicle accounted for 42 percent of GP-led volumes in 2020, down 13 percentage points on 2019 and still the most popular deal type, Greenhill noted.

The proportion of volume accounted for by single-asset deals rose by 5 percentage points, driven by several $500-million-plus transactions. These tended to be based around covid-19-resilient assets. Strip sales accounted for 3 percent of GP-led deals by volume, a decline of two percentage points on 2019.

“Single asset deals have crowded out this part of the market,” said Engelien. “Strip sales are also more challenging when it comes to alignment between the GP, existing LPs and new investors.”

– Adam Le contributed to this report.