Pricing rebounds in H1 amid public market recovery

The dip in pricing during the second half of last year had no lasting impact on the secondaries market, according to research by Elm Capital.

The median high bid for buyout funds in the first half of this year was 98 percent of net asset value, compared with 95 percent in the second half of last year, the advisory firm noted in its Review of H1 2019 newsletter. A steep decline in global equity markets put downward pressure on secondaries pricing during the later stages of 2018.

The recovery in public markets and the resultant impact on portfolio NAVs, as well as renewed access to the IPO market, helped mitigate concerns on the exit environment, driving pricing up, Elm noted.

The number of deals pricing at par or above was 18 percent in the first half, down on 27 percent in the first half of last year and 30 percent the half before. The overall dispersion of pricing narrowed. Of all bids received over the period, 65 percent priced at between 85 percent and 99 percent of NAV, compared with around 50 percent in the second half of last year.

A combination of limited partners aiming to de-risk their portfolios, high pricing and large amounts of dry powder suggests a “very active” second half. However, buyers are becoming more selective as they prepare for a possible economic downturn which could cause discounts to open up for lower quality assets, deterring some sellers that don’t need liquidity from coming to market, Elm noted.

Speaking on a panel at the PE Insights conference in London in early September, Hamilton Lane principal Mitesh Pabari said that firms had to seek deals in which they have an edge and avoid situations where the only factor is price.

“The LP market is becoming incredibly competitive and there are a lot of buyers, including more non-traditional buyers,” Pabari said. “It’s easy to buy into a rising market. When things turn, that’s where the proof of the pudding is.”