The GP-led restructuring on Nordic Capital VII was the largest yet. Around €2.5 billion of net asset value was moved into a continuation vehicle backed by Coller Capital and Goldman Sachs Asset Management. In February, we noted how some limited partners were unhappy with how much time they were given to make a decision on the deal, one describing the 20-day timeline as “very arrogant and unrealistic”.
“The deal may be a success for the buyers, advisor and many LPs, but frustrated investors may turn frosty next time a GP-led process slides their way,” we wrote.
In August, we noted how maturing private equity markets, large amounts of dry powder and the convergence of buyer and seller expectations had created perfect conditions for Asian secondaries deals to flourish. Just the past couple of weeks has seen the finalisation of TPG’s GP-led processes on its fifth and sixth Asian funds, and the spin-out of Standard Chartered’s private equity team.
We weren’t afraid to walk back a previous Friday Letter, either. “Back in December , Secondaries Investor struck a cautious tone. Dealmaking in Asia would remain lumpy. There would be more GP-led processes but, due to a lack of suitable candidates, not many more. It looks as if we were too conservative in our outlook.”
Secondaries Investor was full of stapled deals in October, with Horizon Capital, Bridgepoint and LBO France tacking primary components on to their secondaries processes. While the attractiveness is obvious to the manager, selling LPs bear the brunt of any effect it has on pricing. Transparency about what you are seeking and how much it is likely to cost is a must, we wrote.
“Hardwiring a stapled component into a tender offer and then being upfront with LPs that the price they’re being offered has been diluted by a simultaneous primary commitment is the only way to mitigate conflicts of interest, regardless of the type of staple being proposed.”
Secondaries Investor had some choice words to say about the failed attempt to sell listed firm Electra Private Equity and its remaining assets in August. The board had received interest in acquiring each of the five portfolio assets, individually and in groups, but no firm interest was received in acquiring the company. Even just selling the assets on the secondaries market would be tricky, we noted:
“The problem of portfolio concentration, heavy exposure to one sector and geography, remains. In addition to the control stakes, the portfolio contains minority positions… it is less clear why a buyer should take stakes in three firms with hazy exit horizons over which they have no control.”
In October, Lexington Partners acquired two of the three non-control stakes for £119 million ($151 million; €131.6 million). We’re happy our expectations were confounded.
In May, BlackRock poached two investment professionals from Goldman Sachs Asset Management to help it break into the secondaries market. In an internal memo, the firm noted that it wanted to become “the leader in this business”, no doubt building on the experience of Steve Lessar and Konnin Tam by targeting the top end of the market. For an area of the market long dominated by a handful of well-established names, the significance of the news cannot be overstated.
“It may take BlackRock at least a year, perhaps 18 months, before it is up and running and able to bid on large deals. But when it does, the market will have a behemoth of a competitor to contend with,” we said.
Secondaries Investor would like to wish all our subscribers a Merry Christmas and Happy New Year. We look forward to bringing you more intelligence on the secondaries market in 2019.