Partners seeks quality over risk in PE secondaries

The Swiss-based investment manager believes private equity secondaries pricing could go higher still, but risky assets should be given a wide berth.

Potential future macroeconomic volatility means now is not a good time to be buying into the risky end of the private equity secondaries market, according to Partners Group head of private equity Stephan Schäli.

Stephan Schaeli
Stephan Schäli

The focus should instead be on buying private equity interests with quality underlying assets that can withstand any future volatility, Schäli told Secondaries Investor.

“At the moment you will not be compensated for buying into the risky end of the market. You may have to anticipate more volatile macroeconomic developments in the future, after five years of relative resilience,” Schäli said.

Partners Group was happy to buy new, stable private equity assets that were unfamiliar, but it made less sense to buy at the risky end of the market where esoteric assets are being sold off, Schäli added. The current high premiums to net asset value being paid for secondaries interests could increase further, if stock markets remain stable and central bank liquidity injections and the overall flight to assets continue.

“Higher pricing is partly justified for quality assets because you have much greater liquidity prospects in these portfolios. I think the difference between 2006 and 2007 is that buyers as a group are relatively careful not to overdo it. Some lessons from past overpaying have been learned,” Schäli said.

In June, Secondaries Investor reported that Partners Group had acquired interests in three private equity funds managed by BC Partners and Apax from MLC, the wealth management division of the National Australia Bank.

Partners Group confirmed in March that managing director and co-head of secondaries Philipp Schnyder will be leaving his role at the end of 2014. The firm declined to comment on Schnyder’s replacement.