The market for diversified, mature LP portfolios is coming back after falling out of favour during the coronavirus crisis, according to Elm Capital.
In a March private markets review, the London-based advisor said it has seen a “marked pick-up” in discussions about tail-end portfolio sales, with limited partners looking to offload older stakes or restart delayed processes.
“It is mostly funds of funds and secondary funds selling old vintages,” chief executive and managing partner Etienne Deshormes told Secondaries Investor. “This is seen by many as good practice in order to return liquidity to LPs, stop the IRR clock and liquidate old vehicles.”
Demand for these deals is strong, as secondaries funds look to rebalance their portfolios with more LP deals after a period where GP-led deals have dominated, Deshormes said.
Funds of vintage 2010 or older represented 12 percent of deals that Elm advised on in the second half of last year, down from 27 percent in the first half. The most common fund vintage year Elm transacted on last year was 2014, accounting for 20 percent of total volumes.
The “short-term distributions” produced by tail-end funds fell out of favour in 2020 as exit horizons were pushed back, the advisor concluded. Investors instead opted for funds with large amounts of uncalled capital to be able to take advantage of crisis-era discounts and with sufficient duration to be able to work through pandemic-related challenges.
There are several large secondaries and fund of funds portfolios in market, conversations with advisors suggest. Mercer, Wilshire Associates and wealth management group Partners Capital are among the groups to have sold off tail-end portfolios in the first quarter, UK filings show.