As restructurings become a more common occurrence in the secondaries market, GPs now know that they can control liquidity in a slightly different way, says HarbourVest managing director David Atterbury.
How has high pricing affected the market during the first half of the year?
One thing that we’re certainly seeing is that there are far more opportunistic sellers in the marketplace.
I think intermediaries are communicating full price expectations to potential sellers so people who may not have sold in the past are now using the market opportunistically, using it to trim their portfolios, to reallocate, to sell old names and invest and re-up with the names they’re backing going forward.
Is the secondaries market at risk of over-leveraging?
You need to be careful given where we are and given where pricing is in the marketplace, so our view is that you should fall back on buying good quality assets with good quality general partners.
Therefore, if there is a strong pullback in valuations or in the general macro environment, then you have people who have been through the cycle and will still generate good returns, even if they’re not as high as you may have hoped for.
How and why have restructurings become an important part of the secondaries market?
We have reached a point in the marketplace where people are talking about it more and more, because it has created an alternative to selling companies on a line-by-line basis.
With challenges in fundraising, the increasing awareness of restructurings has made managers look for ways to reinvigorate their franchises. There could be some very good deals out there to be done if you can get the right combination of assets, but you have to be very selective.
Secondaries have always been about providing liquidity to the private equity market and historically, that has commonly been done by providing liquidity to other limited partners who invest into funds. With restructurings, GPs can control the liquidity in a different way.
Is the fund of funds model declining?
In addition to secondary investing, we are also active in co-investments as well as providing custom solutions across strategies. The funds of funds model continues to remain a core part of our business, through both comprehensive and niche portfolios. We still see a lot of demand out there.
The reason why we don’t believe it’s in decline is because of the experience we have for all these years – it’s still a valuable skill set for our clients.
The headlines may talk about a decline, but we’ve adapted to the changing circumstances in the market and that has meant that our business model has stayed pretty robust.