Leverage

The alternative assets specialists has advised on more secondaries deals so far this year than all of 2014.

Increased competition is prompting secondaries firms to find new ways to maintain returns, including using leverage and participating in restructurings, according to Sunaina Sinha from Cebile Capital.

Whether for acquiring portfolios, ensuring the efficient use of investor equity, or for returning value to investors, secondaries participants are increasingly viewing debt as part of their strategic mix, explains Simon Hamilton, head of Investec Fund Finance.

Using leverage in private equity secondary transactions has its advantages but also raises issues around the form of security of such financings that both buyers and sellers should be aware of, explains Ted Craig, a partner with MJ Hudson in London.

Navigating full pricing, the rise of restructurings and the use of seller financing in today’s booming secondaries market were among the topics debated recently in New York at a PEI roundtable.

Secondaries buyers are increasingly using deferred payments and leverage to compete for assets. But smart structuring can also lock in returns in case there’s a new downturn in the euro zone.

Leverage was predominantly used to buy portfolios of stakes in mature buyout funds, according to Evercore.

Apax Europe VII recently exited Swiss mobile operator Orange Communications for $3bn.

About 63 percent of investors surveyed by Investec are likely to use third-party debt for a secondaries acquisition in the future, explains global head of fund finance at Investec Simon Hamilton.

2014 was the year of high priced fund books and cheap leverage, Coller Capital chief investment officer Tim Jones said.