Oregon’s take on dry powder

Sam Green, private equity investment officer at the Oregon State Treasury, talks dry powder, pricing and ‘tactical shifts’ in secondaries strategies.

This week advisory firms Evercore and Cogent Partners released their respective counts of secondaries-focused dry powder, with Evercore reporting $87 billion and Cogent $84 billion.

However, both tallies include capital that’s expected to be raised in the near-term, based on the advisory firms’ tracking of funds in market or expected to come to market.

Stripping those projections out, current dry powder is estimated at between $45 billion (Cogent) and $55 billion (Evercore), which is not far off last year’s transaction volume, estimated at $42 billion by Cogent and $47 billion by Evercore.

I’ve been talking to a number of LPs this week as to whether or not the supply of capital is concerning or impacting their secondaries strategies in any way.

Here’s what Oregon’s Sam Green had to say.

Has Oregon been more hesitant to commit to secondaries funds recently because of the large sums raised for the strategy? New Jersey and other LPs have flagged dry powder levels as a reason to remain on the sidelines.

We have made a tactical shift and raised the underwriting bar on larger secondary funds, however this is more in recognition of the very strong pricing environment for secondaries. Secondary funds are facing a headwind right now.

The amount of dry powder in the secondaries market is somewhat of a concern. Secondary prices are at historic highs, and to deploy that dry powder, managers seem to be altering their strategies. Some of these changes in strategy include more reliance on leverage, payment deferrals and structuring in transactions, and buying assets through non-traditional routes like fund recapitalisations.

Have you heard other LPs express concern over dry powder?

Not on a large scale, but some may be deferring new secondary relationships, or making smaller commitments.

Do you think the supply of capital is impacting market dynamics?

I think it will keep prices high for the foreseeable future. From a behavioural sense, it puts pressure on buyers to invest, and gives sellers courage to hold out for full pricing.