The soar in secondaries transaction volume last year was not the case across all asset classes.
Real estate secondaries dropped 12 percent to $5.3 billion from $6 billion the year before, according to data from private equity and real estate secondaries firm Landmark Partners. This was largely due to the lack of $1 billion-plus portfolio sales during the year.
In August 2017, Harvard University endowment’s management company sold nearly $2 billion of real estate stakes to Landmark and Carlyle unit Metropolitan Real Estate Equity Management, as Secondaries Investor reported.
According to Dimme Lucassen, senior investment manager at Aberdeen Standard, the much smaller size of the market and the longer-term, lower-risk nature of real estate exposure have made sellers less likely to opportunistically bring big portfolios to market.
The value of GP-led deals in real estate increased last year, with $2.1 billion of sponsor-driven transactions recorded against $1.4 billion in 2017.
A majority of these involved the recapitalisation of mature funds and can be attributed to the “aging of the cycle of ‘peak’ vintage funds raised from 2006 through 2008″, Landmark noted.
According to Isabel Dische, an asset management partner at law firm Ropes & Gray, the conversation is beginning to widen away from recapitalisations towards more sophisticated transactions, including spin-outs and fundless sponsor restructurings.
“You’re not always starting with an existing fund,” she said. “You might be looking at a portfolio that’s held by a corporate or a family office, taking that portfolio off their plate and creating a fund around it, and perhaps setting up a manager to run it thereafter. We are seeing an increasing number of structured secondaries which don’t involve a fund at the end of its life.”
Just under half of the stakes that traded hands last year were in US-focused funds, with 35 percent Europe-focused, Landmark noted.
Fund sponsors and asset managers were the biggest sellers, accounting for 49 percent of total transaction volume, up from 21 percent in 2017. The wind-down of funds of funds accounted for 10 percent of deals last year, up from 2 percent the year before.
Endowments and foundations dropped from 47 percent of transaction volumes in 2017 to 5 percent last year, accounted for by the Harvard portfolio sale.
Landmark analysed 100 real estate secondaries transactions that closed or were placed under contract in 2018.
The Simsbury, Connecticut-headquartered firm raised $3.3 billion for its eighth real estate secondaries fund, which held its final close in April. It is the largest fund yet raised for the strategy.