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Real economy concerns hinder secondaries market recovery

The flight towards high-quality assets is ongoing as buyers wait for clarity on the real economic impact of covid-19, according to Jasmin Capital's head of secondaries.

A broad-based secondaries market recovery has yet to take hold, the head of secondaries at European advisory firm and placement agent Jasmin Capital has said.

Investors who are increasingly shifting into “deployment mode” are holding back until the true damage inflicted by covid-19 on portfolio companies becomes clearer, Ludovic Douge told Secondaries Investor.

“Everyone is still very cautious – maybe too cautious,” he said. “We are anticipating the real effects on the economy to happen in Q1 and Q2 next year.”

A flight to quality began when the market re-opened during the summer. This is ongoing, with many buyers quickly dropping more complex opportunities.

“The assets that are seen as covid-proof are very highly valued or sometimes over-valued,” Douge added.

Buyers have proved willing to negotiate structured offerings, such as deferred payments and value sharing, in order to get deals over the line, he added.

In an October whitepaper entitled What are the impacts of covid-19 on secondary markets?, Douge noted that secondaries funds are increasingly making investment decisions based on the fundamental value of portfolio companies rather than betting on their future upside.

“Secondary price levels for the rest of the year will depend on the pace of economic recovery and the extent to which GPs revalue their portfolios at upcoming reference
dates, Q4 2020 in particular,” he noted.

Paris-based Jasmin Capital advises on LP stake sales and GP-led deals in the private equity, private debt and infrastructure secondaries markets. It closes around 10 deals a year, Secondaries Investor reported in March.