Transaction prices reach post-2007 high

Transaction prices rose across all alternative investment strategies during the first half of 2014, with buyout pricing leading the way and reaching 100% of NAV.

Buyout funds continued to generate higher prices than other alternative investment strategies during the first half of 2014, according to a report by alternative asset-focused investment bank Cogent Partners.

Average high bids for buyout transactions reached 100 percent of net asset value, during the first half of 2014, marking the first time that buyouts – or any other strategy – had priced at or above NAV since 2007.

Overall, the main drivers behind the price increases were the general upward movement of the primary public equity market, along with high levels of available capital to purchase secondaries, Cogent Partners director Andy Nick told Secondaries Investor. The prices also benefited from a low supply of deals in the market with respect to available capital. Cogent noted buyers were seemingly willing to pay a premium for quality assets during the period, and were still finding unrealised value in the buyout segment.

Looking forward, Nick remarked that absent any big shocks, the strong pricing environment should continue into the second half of the year.

Andy NIck
Andy NIck

“Premium pricing of between 105 and 110 percent might be seen in the near future, but not for a sustained period,” he said.

One European secondaries GP however expects to see some volatility creep into pricing in the coming months should public markets correct slightly. In this case, he said, prices would not necessarily continue their rise.  Although the pricing figures in the report were roughly analogous to the prices his firm paid during the first half of the year.

Roughly 35 percent of buyout transactions received high bids at or above NAV during the first half of 2014, compared to just 10 percent during the same period in 2013. Buyout fund pricing was the strongest for vintage years between 2006 and 2009, because those funds are in the middle of their harvesting phases. Pricing still remained at or above 90 percent for vintages outside this period, however.

Across all strategies on the secondary market, the average high bid reached 93 percent of NAV during the period. Real estate and venture capital secondaries generated their highest prices since the global financial crisis, pricing at an average of 92 percent of NAV and 82 percent of NAV respectively.

Full-year transaction volume on the secondaries market is also set to reach a new high in 2014, having reached $16 billion in the first half of the year. Cogent predicted that full year secondaries volume would increase by 10 percent over 2013,  exceeding $30 billion for the first time.