Single-asset continuation funds made up bulk of H1 GP-led activity

GP-led transactions comprised 39% of secondaries transaction volume in the first half, according to Greenhill's H1 2023 secondary market review.

Despite buyers vocalising their preference for multi-asset continuation vehicles, single-asset transactions made up the bulk of GP-led activity in the first half of 2023.

Single-asset continuation funds made up 53 percent of the $17 billion GP-led deal volume in H1 2023, and GP-leds represented 39 percent of overall secondaries transaction volume, according to Greenhill’s Global Secondary Market Review H1 2023. Multi-asset deals made up 30 percent of GP-led activity over the period, with transactions including spin-outs, strip sales and LP tenders making up the remainder.

In the same period last year, single-asset transactions made up 43 percent of the $20 billion of GP-led deal activity, with multi-asset continuation funds making up 41 percent.

The secondaries market saw $44 billion of transaction volume in the first half, down from $58 billion across the same period last year, according to the report. LP-led transactions made up the bulk of H1 2022 deal activity at $27 billion.

The GP-led findings felt “counterintuitive” given buyers have been telling the market that they prefer multi-asset deals, Bernhard Engelien, head of the European secondary capital advisory at Greenhill, told Secondaries Investor.

The fact that buyers feel they can do more in-depth due diligence on a single asset may have led to more conviction and comfort in these transactions, Engelien said, adding that pricing has also played a part.

Pricing for more diversified continuation funds has become more aligned with pricing observed in the LP-led market, the report said, adding that buyout assets were pricing at double-digit discounts to NAV. Pricing for single-asset transactions, however, remains very asset specific.

Some managers have chosen not to pursue continuation fund transactions due to these discounts, Engelien said. In some instances, transactions that have begun as multi-asset continuation funds have been refocused into single-asset transactions.

Overall secondaries pricing across all strategies slid from 83 percent in full year 2022 to 80 percent in the first half, with most strategies trading sideways, the report also noted.

Rise of the mosaic

The majority of secondaries transactions in the first half involved multi-buyer mosaic solutions, the report found.

Half of last year’s secondaries transactions were mosaic deals, representing the highest proportion of transactions to adopt the solution in seven years.

A short-term factor at play is that market participants are focusing on high-conviction GPs and assets where they feel more comfortable being aggressive on pricing, Engelien said. In select cases, Greenhill saw “aggressive bidding behaviour” from buyers for high-quality, newer vintage fund portfolios, the report added.

Buyer specialisation is also playing a role. “While you will always have the big flagship buyers, we’ve certainly seen people [that are] now more specialised in areas such as infrastructure [and] private credit where, ultimately, if you have a diversified portfolio there is a more natural trend that this portfolio will be broken up between different buyers,” Engelien noted.