Pricing for limited partner stakes in private equity funds is continuing to exceed 100 percent of NAV, according to Ed Gander, co-head of the global private funds group at law firm Weil, Gotshal & Manges.
“There is a lot of demand for LP stakes. Pricing is already quite ‘toppy’ and on a number of occasions it’s going beyond 100 percent of NAV. This is a rare, but increasing phenomenon.”
The size of the largest individual fund stake transactions is also increasing, as secondary funds themselves grow in size and the market begins to mature, Gander added.
“As more capital is becoming available through the secondary funds market, it is driving both pricing and the size of the transactions themselves. As the whole alternatives asset class is becoming more mainstream there’s a lot of portfolio reorganisation going on.”
In addition to the immense amount of secondaries market dry powder, auction processes are driving bids up, Gander added. Investors are bidding higher NAVs than they historically have, in order to keep up in the auction processes and to maximise their chances of winning.
On the sell-side, the desire of LPs to rationalise their numerous GP relationships is one of the main drivers behind fund interest disposals.
“Where some LPs have perhaps historically had too many relationships, they’ve realised that they perhaps don’t always have enough resources to manage all of them as effectively as they would like. So they are downsizing and putting some of their remaining fund holdings on the block.”