Since its launch in 2021, PEI Group’s annual Women of Influence in Private Markets list has spotlighted 180 female professionals making their mark in alternatives. Among these have been a number of women who focus on secondaries transactions across various asset classes and from all sides of the market. This includes the likes of Lea Lazaric Calvert, a senior managing director and head of Evercore’s European private capital advisory team; Isabel Dische, a partner and chair of the alternative asset opportunities group at law firm Ropes & Gray; and Commonfund managing director and head of secondaries Cari Lodge.
In 2023, three women with secondaries expertise were featured in the private equity category of the Women of Influence list: Morningside Capital partner Tori Buffery, KKR partner and head of Customised Portfolio Solutions Saleena Goel, and Martha Heitmann, a partner at LGT Capital Partners. Here, they share their insights on the latest developments in the GP-led market.
What do you expect to be the dominant themes in the GP-led space over the next 12 months?
Tori Buffery: I would point to four main themes set to impact GP-led activity over the year ahead: a lack of liquidity from portfolio exits, which will drive demand for GP-leds; a renewed focus on portfolio-level and company-level leverage; a flight to quality, which could result in deals being either oversubscribed or broken; and involvement from incumbent LPs in term setting and deal approvals.
Saleena Goel: While 2023 was particularly active on the LP-led side, we think 2024 will continue the growth that we have seen in the GP-led market. We expect buyers will enhance their own diligence of the assets, whether evaluating the quality of earnings or underpinning market characteristics, something we actively pursue in our own underwriting. We also expect to see increased transaction structuring as the evolution of the market continues. We are optimistic for an active year ahead.
“We’ve seen a lot of independent secondaries firms go in-house which may have an impact on the buyer universe for transactions”
Tori Buffery
Morningside Capital
Martha Heitmann: We believe that mid-market companies will be a dominant theme in the GP-led space. Large companies typically rely on strong IPO markets or large debt financing packages for exits. Conversely, mid-market companies have more exit optionality. They can be sold to a financial sponsor, strategic acquirors, and can also be over-equitised initially. Mid-market companies also tend to have lower leverage and more reasonable entry valuations.
What pockets of innovation are you seeing in the secondaries industry right now, particularly in the GP-led market?
TB: For a market that has been continuously evolving over the last few years, transactions have started to follow a generally accepted template and one could argue there has been slowing innovation. I’m curious about how the market will evolve with new entrants getting into the space. We’ve seen a lot of independent secondaries firms go in-house, which may have an impact on the buyer universe for transactions.
MH: The GP-led market continues to evolve as it seeks innovative paths of liquidity for both LPs and GPs. First there were tender offers of LP interests, followed by GP-led transactions that evolved into strip sales of assets, and later into single-asset transactions. Importantly, these transactions are not purely bound to continuation vehicles. They can also be structured as minority recaps through direct secondaries transactions with GPs, or structured solutions such as preferred instruments. These solutions allow GPs to create liquidity while retaining control and providing capital for future growth.
From your perspective, what are the key ingredients needed to get a GP-led deal over the line?
TB: There needs to be strong and credible alignment of interest with secondaries investors, such as an additional GP commitment in the asset and attractive continuation vehicle terms. Other key ingredients include momentum in the underlying portfolio, as well as a ‘fair’ valuation for both new and selling LPs. Finally, the process must be well run – who the placement agent is matters.
SG: We are deliberate in our approach to GP-led deals. When evaluating these opportunities, three boxes that are particularly important from our perspective include the attractiveness of the asset, the quality of the GP, and transaction alignment. We actively track portfolio companies over time and lean in when we see a clearly defined go-forward value-creation strategy alongside a manager that we have confidence in and who has demonstrated success in similar situations. Lastly, we prioritise strong GP alignment and appropriate deal structures and economics.
“Buyers need comfort that the GP is a net buyer of the assets and not a net seller”
Martha Heitmann
LGT Capital Partners
MH: Buyers need comfort that the GP is a net buyer of the assets and not a net seller, with strong alignment that can address concerns regarding GPs solely seeking to realise their carried interest. On the other hand, sellers need assurance that the value of the funds has been maximised, and GPs should not alienate their current LP base through the process. As such, GPs need to walk this fine balance in order to get a deal over the line. In our experience, the key ingredient is to create a transaction around their most promising assets that need more time to maximise the full potential of the business. This way, exiting LPs are able to sell at strong marks, and have the option to re-invest if they believe in the future upside of the business.
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