Majority of GP-led assets backed by mega-buyers deliver over 3x MOIC, says PJT

Trophy assets were a key feature of GP-led secondaries transactions in the first half, with the majority of assets housed in such transactions targeting a 2.5x multiple on invested capital or more, according to a report from PJT Park Hill.

Sixty percent of ‘mega-buyers’ – defined as those with vehicles larger than $5 billion in size – transacted on assets that generated a gross MOIC return of between 3x and 4x for the selling LP upon transaction close, with a further 20 percent making above a 4x return, according to PJT’s Investor Roadmap Series H1 2023.

For large buyers with fund sizes of between $500 million and $5 billion, 30 percent of the deals they transacted on saw selling LPs make an over 4x return at transaction close, with 40 percent making a 2-4x return. In the mid-market (buyers with fund sizes between $100 million and $500 million), 50 percent of transactions resulted in an above-2x return for selling LPs.

“[The findings emphasise] what a lot of us have been saying: these transactions typically tend to centre around trophy assets, assets that the sponsor is quite bullish on… has made a good return on, and expects to continue to drive go forward value on,” Chris Areson, a partner in PJT Park Hill’s private capital solutions group, told Secondaries Investor.

Areson added that these transactions create “win-win-win” scenarios for GPs, buyers and LPs given the quality of the assets typically involved.

The majority of these assets are being pitched to prospective buyers and existing LPs evaluating a sell/roll option at a 2.5x-plus go-forward MOIC return, with 77 percent of deals projecting an IRR of 25 percent or above, according to the report.

As managers are typically investing a substantial amount of their own capital into these businesses at the transaction price, the deals do create an “interesting alignment mechanism”, Areson said.

“Obviously they have a fiduciary responsibility to drive the best price that they can for their underlying fund, but they feel like it’s a good asset that is going to continue to perform,” he added. “The ability [for a GP] to put their money where their mouth is… may help me [as an LP] get a little bit more comfortable [with the fact that the] go-forward isn’t necessarily just some pie in the sky sell case, but something they believe in.”