This week the issue of who really led a deal – and what it really means to lead a deal – reared its amusing head again.

In IK Partners’ single-asset process for insurer Yellow Hive, as we reported on this week, one source told us TPG negotiated the key terms of the transaction. According to a separate source, however, AlpInvest Partners and TPG jointly set the key terms and structuring for the transaction.

When faced with conflicting information, we typically either omit the information, or we present it and let readers decide. In this case we went with the latter.

Readers will know that the topic of leading a deal is one we have covered previously on Secondaries Investor. Last November, my colleague Madeleine Farman noted that while there is no legal definition of a deal lead per se, a true lead will typically have certain rights.

In 2022 we also noted the benefit for marketing purposes of being able to claim you structured and negotiated a transaction.

Amid the increasingly tense battle for being referred to as the true deal lead – even down to whether a firm’s name appears first or second in a headline or sentence – it’s worth acknowledging that some investors don’t want to lead deals at all. For some, they simply prefer to be syndicatees in a transaction due to their fund size or investment strategy.

There are a few reasons for wanting to be a deal-taker over a deal-maker. One is that some are simply happy to have access to high quality assets via GP-led processes, so long as they have alignment with the lead investor. With positive selection bias leading to many high-performing assets being retained in continuation funds, some secondaries firms see value in simply creating an index-like fund that has exposure to trophy assets via CVs.

“It’s kind of nice when I get a call, terms are agreed, legals are already done, data room’s lovely, [and] I know the deal’s going to close,” said Tori Buffery, a partner at Morningside Capital Management, speaking at PEI’s Nexus summit last month. “There’s value to me that someone [else] has led that deal.”

Another reason is that they don’t see the preferential terms or fee discounts afforded to lead investors as something that really moves the needle when it comes to returns.

It’s not possible to say yet whether things like a 50-basis-point management fee break on a particular transaction will really translate into a sizeable difference in net returns for LPs. There are other perks of being a lead: data from law firm Paul Hastings this week showed that of the transactions it advised on over the past year, all CVs paid for lead investor expenses up to a capped amount.

What is possible to say is that there’s anecdotal evidence that structuring and negotiating a deal necessitates higher conviction in a transaction, and it’s these deals that will ultimately perform better – if the secondaries investor is good at what they do.

“There is something there in that if you [are sole] lead, you step up, you have higher conviction,” said Tjarko Hektor, founder of New 2nd Capital, also speaking at the summit. He added that of the roughly 50-plus transactions his firm has backed, deals in which he was a co-lead are the less well-performing ones.

It’s likely the battle over who’s named as a lead in a deal will continue for some time, and for various reasons. For syndicatees, the increasing evidence available that continuation funds can perform just as well as blindpool secondaries funds or even buyout funds provides ample reason to simply be a part of this market – even if that means sitting in the back seat.

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