When sister publication Private Equity International recently asked more than 300 private equity market participants to rank their biggest concerns, macro issues dominated: Brexit, negative interest rates and a Trump presidency emerged as the top three.
Such concerns have weighed on secondaries market participants over the last 12 months, and for a sector that is often said to respond well to market dislocations, the headwinds have had varied effects.
Secondaries deal volume for 2015 dipped slightly to $40 billion, having peaked at $42 billion a year earlier, according to Greenhill Cogent, which cited fewer deals closing in excess of $1 billion. This slowdown, driven by an accelerated decline in crude oil prices, the S&P 500’s worst start to a year, Brexit and growth fears in China, continued into 2016 with the investment bank estimating a 20 percent drop in transaction volume during the first half, its lowest level in three years.
But the dip in deal volume does not signify a deceleration in the overall secondaries market, according to Bernhard Engelien, a managing director in Greenhill’s London office. He says that while there were only two $1 billion-plus deals during the first half of the year, activity is shifting to the middle and lower end of the market, as well as to GP-led transactions, which increased to around 30 percent of the market in H1.
“Everyone is trying to specialise a little bit and develop an edge,” Engelien says. “The market is quite segmented. The larger players look at the large deals and there’s a fair amount of deals which are anywhere between $30 million and $200 million that may not always be attractive for the larger buyers.”
One of those large buyers is Ardian. The Paris-headquartered firm isn’t concerned about a slowdown in dealflow at the top end, with the firm’s US head telling Secondaries Investor it carried out advanced due diligence on $15 billion-worth of potential $1 billion-plus deals in the first half.
“This segment is the most interesting for us as we have limited competition in this area,” Benoît Verbrugghe, head of Ardian US says. “There are only a handful of players in the market with the required knowledge and capacity to bid on such deals.”
Ardian has also been busy on the fundraising front, holding the final close in April on $10.8 billion for its ASF VII vehicle. For its part, Ardian does not believe its landmark fundraise means capital raising in the secondaries market has peaked. Rather, investors are becoming better educated about the strategy, and as the market continues to mature, even more investors will become attracted to it, Verbrugghe says.
Political uncertainty and macroeconomic concerns do not appear to have affected fundraising over the last 12 months, with 20 dedicated secondaries funds closing on around $29.6 billion between September last year and early August, according to PEI data.
This is the first half of an article that appears in the September issue of Private Equity International.