Larry Thuet, Park Hill vice-chairman and longtime head of the firm’s secondaries advisory group, is understood to have retired over the summer. Secondaries Investor caught up with Jonathan Costello who now leads the unit to discuss the leadership at the firm, its growth plans as well as his thoughts on single asset restructurings and securitisations.
Tell us about the leadership and makeup of Park Hill’s secondaries advisory business.
Larry [Thuet] has retired and I have assumed the role of the head of the group. It’s a transition that has been taking place over the last 12 months. I’ve been operating in that role for the last year. The three of us, Adrian [Millan] and Pablo [Calo] are the senior folks on the team. Pablo is a partner and head of our London-based team. He focuses most of his efforts outside the US. I focus most of my efforts in terms of sourcing and deal execution in the Americas. Adrian plays across all of our limited partner-related transactions. We have 27 [people] total dedicated to secondaries advisory.
What are your growth plans?
We’re still very active in our LP business, selling portfolios on behalf of various institutional investors. We have been extremely active in the general partner space and we have current mandates in the structured products/securitisation space. Our plan would be to add a handful of people to the team to support that growth. You could probably see another four to six people join our team in the next 12 months. Most of the hires would probably be in North America because we have a pretty large team in London.
I understand Park Hill has executed at least three single asset restructurings this year. How do you see this deal type playing out?
Single company transactions are a newer phenomenon in the market. The secondaries buying universe is trying to figure out, is that in scope for their mandate or not? It’s a hybrid between a direct investment or co-investment and a secondaries transaction. We’re quite excited about it because it basically pivots the conversation to portfolios that are younger. The whole market would like to have opportunities with successful GPs with good companies that have a longer runway. Those are a great set of dynamics for the overall market. This type of transaction is one application playing on that trend.
Do GPs charge transactions costs to portfolio companies in GP-led restructurings?
Usually not. Usually they’re structured much like a traditional deal where the LP electing liquidity bears [the cost of] the liquidity option. But there’s a nuance to what you’re asking. These fees are similar to what you would see in the more traditional M&A construct. We view these GP-led deals more like an M&A deal than a placement deal. It’s a multi-company M&A transaction.
How do you see the securitisations market playing out?
Each of these deals are bespoke and unique to the owner of the assets. There’s been an expansion in the number of conversations we’re having. We’re seeing new applications of the technology beyond just the classic collateralised fund obligation structure.
What types of applications are you seeing?
I can’t speak to that yet, but soon we’ll be able to talk about some interesting transactions we’re working on in this area. We’re quite excited about the prospects for the use of structured products as another form of liquidity in the market.
Could you see something like Astrea IV happening in North America? If so, when?
Definitely. Probably over the next 12 months you’ll see multiple deals, and larger [than Astrea IV]. You could see people sponsoring a CFO wanting to fill in any gaps in their portfolio [via the secondaries market]. I view that as an occasional participant in the market, versus a regular-wave participant. I could see the potential for some traditional investors in secondaries participating as investors in some of those products, depending on what the structure of the deal is and what the projected returns are for those different securities that make up that capital stack.
What’s your broader outlook for GP-leds?
I think we’re in the first inning of the GP market. I think with some of the larger platforms being open to these types of transactions you could see those groups utilising this market on a more frequent and regular basis. If you think about some of the largest platforms in the world that have multiple asset classes, multiple products, they could see numerous applications of this technology across their platforms. If that were to occur, it may ultimately dwarf the regular way LP part of the business.
Jonathan Costello is a partner and head of Park Hill’s secondary advisory group, based in New York. Prior to joining the firm he was a managing director with Morgan Stanley Alternative Investment Partners, leading its private equity secondaries investments and serving as a member of its global investment committee.