Wautier, an almost 15-year veteran of the buyout firm and chairman of its investment committee, says BC had considered single-asset restructurings on at least two occasions and had ultimately decided against them as the firm couldn’t come to terms with the potential conflicts of interest.
The firm’s main beef with single-asset deals is over pricing. Finding a market price at which the GP is happy to be both a seller and buyer is problematic, while building a bid process which results in the GP being unsatisfied with bids received and ultimately deciding to hold on to the asset can damage one’s reputation, Wautier says.
In his words: on paper, such deals look like a good idea, but when you start implementing them, they’re “not worth the headache”.
While some firms are clearly able to overcome this headache – PAI Partners, Warburg Pincus, Oaktree Capital Management and Blackstone are all brand name GPs who have run and/or closed single-asset restructurings over the last six months – it’s clear others such as BC aren’t, and will find alternative ways to solve issues in their portfolios. In BC’s case, it opted for partial exits to two of its LPs instead, but there are a raft of other options.
Take TA Associates, which is seeking as much as $1 billion for a fund that will take minority stakes in companies it already owns in its main funds as a way to hold onto certain investments for longer, as sister publication Buyouts reported earlier this month. Or long-term funds such as CVC Capital Partners’ Strategic Opportunities or KKR’s Core Investment funds which hold assets for longer than the traditional 10-year vehicle.
GPs opting for alternatives such as these naturally leaves secondaries market participants with less to chew on.
As GP-led secondaries become more akin to M&A processes, secondaries buyers are likely to find themselves competing with a wider competitor set for GPs’ attentions. Just look at Charterhouse Capital Partners, whose GP-led secondaries process on its 2009-vintage flagship was derailed after it decided to sell the fund’s prized asset Comexposium to a strategic buyer.
The secondaries market is not the magic solution for every GP with an issue to solve in its portfolio. But for the continued growth of this part of the market, it’s vital processes are squeaky clean and run with full transparency of motivation and even greater disclosure of potential conflicts of interest from all parties involved.
With almost $15 billion raised for secondaries in the third quarter of this year alone, as our latest fundraising figures show, and a bonanza of final closes expected in the next six months, there’s never been a more compelling reason to ensure all that raised capital finds a home.