Lazard: Pricing in 2023 caused a trade-off between LP-leds and GP-leds

Pricing in second-hand fund portfolios was one of the key drivers of whether buyers chose to invest in LP-led deals versus GP-led processes this year, according to the head of Lazard‘s secondaries advisory business.

Wide discounts on pricing in LP portfolios in the first half of the year led to buyers feeling there were better optical bargains to be had in that part of the market, Holcombe Green, global head of private capital advisory at Lazard, told Secondaries Investor.

“I haven’t really seen that… true trade-off in the secondaries market within a calendar year ever – certainly not for a very long time,” Green said. “There’s been a very definite break in the market between the first half of the year and the second half of the year.”

Average high bids for second-hand fund stakes across all strategies fell to 80 percent of net asset value in the first half of this year, marking the widest discount since at least 2013, according to data from Greenhill.

According to Green, pricing for LP portfolios rebounded to the 90s or par to NAV in the second half of the year.

“GP-led deals tend to get done at relatively small discounts, if any. We’ve seen some capital flow into the GP space in the second half of the year that was not there in the first half of the year,” he said.

In 2023, sponsors investing in their own continuation funds using capital from their flagship funds was a notable development, according to Green. This has served two purposes: increasing alignment with both existing LPs and new investors due to the sponsor making a bigger commitment to the overall deal; and reducing the need for secondaries capital.

“In a time when capital is a little constrained across almost every capital market, that has a de-risking effect for transactions that can be useful,” he said.

Deal volumes for this year should come in around $105 billion, split 60 percent for LP portfolio sales and 40 percent for GP-led transactions, Green said.

Looking to the year ahead, Green said he expects deal volume for 2024 to be around 20 percent larger than this year’s. Most secondaries funds have either finished or largely finished their fundraisings, and a number of traditional LPs and alternative asset management platforms began to invest in secondaries this year, leading to a “fair amount of capital relative to history in the secondaries market”, Green said.

“I think the market is going to see bigger issuance [and] more capital, and that’s going to potentially lead to a much bigger year – probably a record year [for 2024],” Green said.