Secondaries for breakfast

Some of the industry’s biggest names gathered in London last week for a panel organised by law firm Proskauer. Secondaries Investor can bring you the inside track from the closed event.

At 8:30am on the day of the US presidential election, secondaries professionals met in a Georgian-era building near London’s Trafalgar Square for Proskauer’s Spotlight on Secondaries breakfast. On stage were Ardian’s Ingmar Vallano, Canada Pension Plan Investment Board’s Nik Morandi, Greenhill Cogent’s Brenlen Jinkens, Proskauer’s Bruno Bertrand-Delfau, with me moderating.

On the menu: the state of the market, the rise of complex deals, predictions for next year, and fantastic bacon and egg sandwiches. While it wasn’t an event open to the press, here’s a synopsis of some of the themes we discussed.

There will be more secondaries spin-outs

We’ve seen a few secondaries players going it alone this year and we’ll continue to see more as experienced professionals in the sector look to build their own businesses in order to keep a larger share of the economics, according to Morandi. Notable examples over the last 12 months include New 2nd Capital, Sweetwater Capital and Kline Hill, launched by former execs from AlpInvest, StepStone and Willowridge respectively. This will increase competition in the smaller end of the market, Morandi said.

A banner-name GP will restructure one of its funds

It’s not the first time we’ve heard this prediction, but two of the panellists said they expect 2017 will be the year.

Fund restructurings have generally involved either a poorly performing fund or a manager who requires additional time to seek exits for assets. So when a brand-name GP decides to use the secondaries market to give liquidity to LPs in a well-performing fund, reset economics, and allow more time for assets to reach an exit, it will be a watershed moment and any remaining stigma attached to these deals will be removed.

One of the panellists seemed to me to be hinting this may happen sometime soon…

Complex deals will continue

With the larger end of the market for traditional deals dominated by bulge bracket buyers – often using leverage of some description, smaller players are turning their attention to complex deals, such as GP-led restructurings, where they can more easily compete, Bertrand-Delfau said.

At the same time, complex deals have in some respects become simpler because there’s more of a template and an accepted playbook that can act as reference points, according to Morandi.

Volatility has a silver lining

Volatility is not good for deal volume – just look at what happened in the first half of this year, with volumes falling as much as 23 percent year-on-year. This has spooked some sellers, with uncertainty over valuations leading some of them to push the pause button on deals, said one panellist.

Uncertainty can also temper sellers’ expectations, and in an environment where many stakes are still trading at tight discounts, this can help to get deals done. Discerning buyers may find this a blessing in disguise. One person at the table suggested an upset in that day’s election could be a trigger for this; little did they know…

What are your predictions for the secondaries market in 2017? Let me know: adam.l@peimedia.com or @adamtuyenle