GP-led secondaries could surpass $20 billion in volume this year as sellers and buyers take advantage of favourable conditions, according to research by Lazard obtained exclusively by Secondaries Investor.
Around $16 billion traded in sponsor-led transactions in 2017, a rise of almost 130 percent compared with a year earlier, the advisory firm wrote in its Financial Sponsor Secondary Market 2017 Year-End Review. This represents around 30 percent of global deal volume.
Deal volume could rise in 2018 due to high pricing, buyers having access to more robust information, GPs being more actively involved and selection bias in such deals as GP-leds generally tend to be of high quality.
Lazard clients obtained premiums “across the board” for the first time last year, the report noted.
“2017 was a watershed year for this portion of the secondary market, as the market developed from one dominated by ‘restructurings’ to one dominated by ‘liquidity events’ executed on behalf of financial sponsors, many with significant brands,” the report noted.
Advisors increasingly focused on GP-led deals last year. Such transactions accounted for the majority of deals by value for Axon Partners, Campbell Lutyens, Credit Suisse, Evercore, Lazard and Rede Partners, as Secondaries Investor‘s annual advisory firm survey found.
Lazard estimates there is at least $9 billion in net asset value worth of GP-led deals in market, in the process of closing or about to launch as of the first quarter of 2018.
Large blue-chip GP-led processes have made headlines in recent months, including Nordic Capital‘s restructuring of its 2008-vintage fund – the largest GP-led restructuring involving around €1.5 billion in NAV – and Thomas H Lee Partners‘ potential transaction involving its 2006-vintage buyout vehicle, as Secondaries Investor reported.
Here are some key takeaways from Lazard’s report:
- Around 90 percent of last year’s deal volume was executed by 14 secondaries buyers.
- APG Group, Canada Pension Plan Investment Board and the Government of Singapore Investment Corporation played significant roles in GP-led deals across private equity and infrastructure. These three traditional LPs “can and do lead these deals and are a real and growing force in this market”, Lazard noted. The firm expects more traditional LPs to develop the in-house skills and replicate the models of large secondaries buyers, creating increased competition.
- Preferred equity accounted for around $1 billion in transactions, including CPPIB’s stapled deal with Olympus Capital Advisors, which involved around $200 million in preferred equity.
- Real estate GP-leds hit around $1 billion in deal volume, accounting for around 5 percent of the market. Yield-oriented direct investors, such as pensions and sovereign wealth funds, are “actively looking” at such opportunities.
- Infrastructure accounted for 27 percent of GP-led deal volume, the largest after private equity. Most deals were conducted in Europe due to the maturity of the asset class in that region. Notable deals included Ardian’s sale of assets from its €1.1 billion AXA Infrastructure Fund II to APG and AXA, DIF’s creation of a continuity fund with APG and Strategic Partners’ purchase of stakes in a pool of five infrastructure funds from four buyers.
- Lazard expects GP-leds in Asia will “substantially increase” and the US will overtake Europe as the largest region for such deals.