Strategic Partners’ Morandi: Pandemic has changed LP mindset on secondaries

The health crisis has been an exogenous factor that has led some LPs to 'reassess from the ground up', according to the Blackstone unit's Europe head.

The covid-19 crisis has altered the way limited partners think about managing their private equity portfolios, the head of Europe for Blackstone‘s secondaries unit has said.

Distributions from some portfolios have lagged behind expectation, spurring LPs to use the secondaries market to accelerate liquidity and return to the point they had budgeted to be at prior to the pandemic, Strategic Partners‘ Nik Morandi told Secondaries Investor.

Morandi: Covid-19 has been a catalyst for how LPs view their portfolios

“There have been situations where LPs have reassessed their portfolios and covid will have been an exogenous factor that’s led them to reassess from the ground up,” Morandi said. LPs have questioned the levels of diversification across strategy, geography and timeframe and turned to the secondaries market as a way of freeing up capital and to rebalance, he added.

The mindset of some LPs is now to take a more frequent and holistic look at their programme’s private equity exposure, Morandi said.

“I think covid has been a catalyst for that, which I think will have longevity because it’s causing a structural change in how LPs view portfolio management.”

Morandi joined the Blackstone unit in October from CPP Investments, where he had helped lead the Canadian pension’s European secondaries business.

Strategic Partners has since launched a dedicated GP-led-focused fund and is understood to have tapped a Blackstone Capital Partners executive to work on the strategy based in New York.

The GP-led strategy, understood to be called Strategic Partners GP Solutions, received a $100 million commitment from Cathay Life Insurance, according to Secondaries Investor data.

Morandi, who declined to comment on the status of the firm’s GP-led fund, said that for some GP-led transactions, the pandemic has alerted managers to the possibility of making accretive add-on investments at attractive prices and taking advantage of opportunities such as consolidation that may not have existed prior to the health crisis.

“We’re talking here about a single asset GP-led or concentrated multi-asset deal where there’s a small number of companies and where the GP can justifiably point to advantages that can be derived from more capital, and where additional capital will be put towards those opportunities,” Morandi said.

“Whether it’s buying smaller players that find life a bit tougher, or opportunities that have presented themselves that require capital or capex – that can be a really important driver of deals and where there’s very clear logic to why that asset would benefit from more time and or more money,” he said.

Strategic Partners is investing multiple vehicles, including its flagship private equity Strategic Partners Fund VIII, which closed on $11.1 billion in 2019. The firm plans to launch its follow-up vehicle “shortly”, chief operating officer Jon Gray said on Blackstone’s first-quarter earnings call in April.

On the return of LP portfolios, Morandi said the long-term driver of dealflow is proactive, more programmatic management of portfolios by LPs.

“It’s a desire to refresh portfolios, it’s a desire to take advantage of co-investment flow that’s offered during investment periods of funds, it’s driven by a compression of the fundraising cycle and the speed with which managers are coming back to market.

“That dealflow has come back and we’re expecting a very strong 2021.”