Indebted to secondaries

Idinvest recently closed its second fund on €214 million. Idinvest chief executive Christophe Bavière talks up the advantages of the mid-market and explains why the firm will use secondaries to help raise a third of its two prospective private debt funds.

IdInvest tends to specialise on smaller transactions which are under the radar screens of the very large secondaries players and in most cases, under the radar screens of intermediaries.

The reality is that in a smaller transaction, even when you have an intermediary, you won’t find one that will call the entire marketplace just for a transaction of €10 or €20 million. Whereas when a bank is selling $500 million of assets, one of the most prestigious firms will be hired and market participants will know of the sale, making it very competitive and inevitably expensive.

The private debt secondaries market in Europe is growing, but I would say that institutional investors still look at private debt as something relatively new compared to the other asset classes. It is sometimes surprising to see that the secondaries market is something not completely understood in terms of private debt strategy. The secondaries market can sometimes be of more use in the private debt area than in the private equity area. The approach to senior debt is maturing very fast but it still has the potential to grow.

Idinvest is currently raising two €300 million private debt funds, with roughly a third of each fund to be deployed on the secondaries. We see using a third of each fund for secondaries as a point of flexibility.

When a GP thinks about private debt, its deal flow is correlated depending on how many new deals are being implemented. On the private liquidity market, when you look at the statistics for the buyout market in Europe and the rest of the world, it’s not completely stable and you obviously have some fluctuation. We all remember that in 2009 and 2010 the market was almost completely closed.

The primary market in the private debt sector depends on new transactions to be completed. But the reality is that there are some periods where you won’t find all that you want on the primary market, so the secondaries market is complementary.

There can be a lot of nervousness in the system.

As a result, you tend to see more distressed sellers and this was particularly the case in 2010 where new transactions were not completed but you could see a lot of banks withdrawing from the market and much selling of portfolios on the secondaries market. The market is aware that the buyout market is bouncing back in the early part of 2014.

Idinvest is very cautious about the speed at which we deploy money for our investors.

We raise vehicles which are not too large, in order to ensure the investor base that cash will be put to work relatively fast. This is a general investment style which spans all of our operations on the private equity and private debt markets. We are not obsessed by league tables, we are not obsessed with arranging transactions all the time; we do the best for our investors but it does not make sense to arrange a transaction when there is no transaction to be done.