Sister publication Private Equity International recently sat down with some of the secondaries market’s top participants for a roundtable discussion in New York. In this second excerpt, Ardian’s Vladimir Colas, Partners Group’s Adam Howarth, Debevoise & Plimpton’s Kate Ashton, HarbourVest Partners’ Jeff Keay and Greenhill Cogent’s Bill Murphy (above L-R) discuss the increase in negotiating portfolio composition.

Click here for part I.

Ardian, which focuses mainly on purchasing large portfolios of buyout fund stakes in the US and in Europe, has been taking advantage of a different set of developments in the secondaries market.

Vladimir Colas, managing director and co-head of Ardian US, notes that as sellers have become more comfortable with transacting in secondaries, there has been an increasing ability to negotiate with them, not just on pricing but also on the composition of portfolios that are for sale.

He adds that there now seems to be more flexibility to add or remove funds in a portfolio, allowing buyers to price more attractively while keeping their return expectations intact.

“There’s a lot of discussions taking place like that, which are more complicated than before, but they’re necessary because today there are funds that you just can’t buy anymore at an attractive price,” Colas says.

“They’re too old. So you’re adding another fund and a lot of the discussion is around that, which is interesting for buyers because you can increase the level of upside, but it necessitates on both sides having a lot of information about a portfolio. In our experience, sellers have been pretty flexible because they know if they want an attractive price, there’ll have to be some negotiation on the composition of the portfolio.”

Some market participants have also focused more on GP-led transactions such as fund recapitalisations, restructurings and tender offers to squeeze more out of returns, although not all such transactions satisfy limited partners.

“We’re probably seeing the most evolution on deal structures in the GP-led space,” says Murphy. “I think that market has evolved to taking a sensitivity defining transactions that work for the new investors coming in, for the investors exiting and for the GPs. I think it’s critical to the success of that market to finding the intersection of those.”

GP-led deals tend to be more complicated, as there are more parties involved, lengthening the process compared with a more traditional LP fund portfolio sale.

“We’ve seen some LPs on those situations who are really willing to discuss and come up with a solution, and sometimes there are investors who aren’t willing to accept a solution at any level, so you really need all the participants to get on the same page to get those done,” says Howarth.

Stay tuned for the third instalment of this roundtable.