JPEL’s portfolio manager, Greg Getschow, outlines the publicly listed firm’s attitude towards trends in the secondary market and why JPEL believes that the secondary direct market is particularly attractive in today’s environment.
Over the past several years, as secondary firms have raised multi-billion dollar funds, competition for large, diversified portfolios has increased significantly. As a result, pricing has narrowed, making it difficult for many secondaries investors to deploy capital in today’s environment.
JPEL, along with other funds managed by our team, tends to focus on a subset of the broader secondary market – secondary directs. We believe that secondary direct investments are an underserved portion of the secondary market, often overlooked by larger secondary funds seeking to deploy hundreds of millions of dollars in diversified fund portfolios.
At JPEL, we view secondary direct investments as concentrated private equity portfolios, single company investments and top-heavy portfolios with one to three key company exposures that can be purchased from existing investors seeking some form of liquidity. In addition, we often target tail-end portfolios where one or two companies remain. In some instances, where it is beneficial for growth, we may also provide companies with additional equity to continue to expand and develop their business, whether organically or through acquisition.
We look to identify companies that share one or more of the following core attributes: seasoned investments with projected liquidity in 2 -4 years; entry values that represent a discount to intrinsic value; visible growth prospects (i.e. growing economies, industries or company specific situations); manageable leverage; market leadership; and downside protection.
By targeting investments in a smaller number of companies, we believe we can conduct a thorough due diligence process in order to make sure we have a clear picture of their growth prospects and are comfortable with the business plan. We believe focusing our time and energy gives us an edge and far greater visibility on the future growth prospects of our investments.
JPEL is a permanent capital vehicle that was created in 2005, the $150 million will be generated through distributions from JPEL’s mature underlying portfolio (the average age of JPEL’s portfolio is 7 years). Since December 2011, JPEL’s portfolio has generated over $200 million of distributions.
We announced in January that we would seek to invest up to $150 million in 15 – 20 private companies through January 2016. Our goal is to create a more concentrated JPEL portfolio, with JPEL’s top 30 companies representing a significant portion of private equity value by January 2016.
Currently, we have deployed approximately $50 million or one third of our target, in four different investments. We have invested in two European companies with global presence, one US-based company and one company based in Asia.
We have a very strong investment pipeline and currently have three potential deals that could be completed over the next six months, and should these investments close, we will be well on our way to having deployed approximately half of the $150 million.