The largest secondaries sale in the market this year – a $6 billion portfolio being sold by Kaiser Permanente – is mostly completed amid the broader challenges around pricing buyer hesitancy.
The sale is among a handful of large LP sales that helped kick off what was expected to be a reopening of the secondaries market from last year’s slowdown. With $15 billion to $20 billion of LP sales since January, the closure of the bulk of Kaiser’s offering is a sign that buyers are willing to transact even amid broader economic uncertainty.
Still, with Kaiser’s offering mostly off the table, not a tonne of new inventory has hit since January – at least at the large end of the market – leading to something of a lull in what had been a strong opening quarter. Pent-up demand among sellers facing liquidity pressures and looking to rebalance overexposure issues is expected to bring more processes to market, though later this year.
Kaiser, a healthcare provider and non-profit health plan formed in 1945, is understood to be working with PJT Park Hill on the sale. No one from Kaiser returned a comment request on Monday.
The initial offering was for up to $6 billion, with a slight discount to net asset value as of the reference date, sources told affiliate title Buyouts. The offering is being taken up by a group of investors – it’s not clear who – rather than one or two large portfolio buyers. This is generally the case in today’s market, with what is colloquially known as a mosaic sale, as numerous buyers pick up fund stakes from GPs they know well, or to which they desire to build exposure.
The Oakland-based organisation last year worked with M2O on a sale of about $1.5 billion of PE fund stakes, Buyouts reported at the time. That deal was envisioned to be larger but was pared down, sources said. It’s not clear how much that deal ultimately closed on.
As fast as Kaiser is selling, it previously built up its private equity portfolio. The system grew from about $6 billion in private equity net asset value in 2019 to $33 billion in 2021, largely under the direction of Anton Orlich as head of alternative investments. Orlich left last year and joined the California Public Employees’ Retirement System, where he now leads private equity investing.
Kaiser appears to be using secondaries sales to rebalance its portfolio, which grew so quickly it became overexposed to private equity, sources told Buyouts. Kaiser is not alone in using sales to rebalance, as many LPs are contending with overexposure challenges and are considering sales.
Kaiser’s sale is one of a handful being closely watched by secondaries market professionals. Others include Norinchukin Bank, which is shopping a $1 billion-plus portfolio, working with Greenhill, and Cathay Life, which is running a sale of a roughly $1 billion portfolio of mostly infrastructure assets.
LP sales led secondaries activity in the first quarter, taking about 60 percent of volume share, according to PJT Park Hill’s first quarter analysis report.
“Successful transactions in the quarter involved carefully crafted portfolios, realistic valuation/pricing expectations and flexibility for structured solutions, which the team expects will continue this year,” the report said.
Pricing strengthened in the quarter compared with year-end 2022, improving 200-400 basis points, coming in around 85 percent to 90 percent of NAV, driven by improvement in macroeconomic sentiment and buyers with uncalled capital looking for deals, the report said. Secondaries investors, mostly large shops, hold around $170 billion of dry powder as of the first quarter, the report found, for around $150 billion of deal volume.
This article first appeared on affiliate title Buyouts