The UK’s Tesco Pension Fund closed out a private equity secondaries sale of about £1 billion ($1.2 billion; €1.1 billion) that, in a reflection of today’s market, was acquired by six buyers, sources told affiliate title Buyouts.
The LP portfolio sale was among a slew of such deals launched since last year that managed to close despite pricing uncertainty and hesitation among LPs to sell at discounts. Some LPs are comfortable selling even with certain discounts, especially if they are in need of liquidity or looking to manage burgeoning exposure to the asset class.
LP portfolio sales took the majority of total secondaries market share last year in a reversal from 2021. Of about $102 billion of total sales last year, about $60 billion were LP sales, according to Lazard’s 2022 full-year volume report.
Such deals are expected to lead off activity this year, with about $14 billion to $16 billion or more of such sales on the market, led by a $6 billion portfolio from Kaiser Permanente.
The portfolio is understood to have sold at a discount. Generally, LP portfolios are trading at 10 to 15 percent discount to the net asset value as of a certain reference date, usually as of June or September. Certain incentives can ease the discount such as deferral payments, though “nothing is trading on cash at less than 10 percent discounts” right now, according to an adviser.
Last year, average pricing for LP sales was 81 percent of NAV, an 11 percentage point decline from 2021, data from Jefferies shows. Pricing discrepancies caused LPs to hold back portfolios, or sometimes only sell portions of their full offering.
Tesco ran the sale starting last year of between £1 billion and £1.5 billion, Secondaries Investor and Buyouts previously reported. The sale was part of Tesco’s long-term de-risking strategy and its rebalancing requirements. The pension is understood to have worked with Campbell Lutyens on the sale.
The portfolio was a mix of buyout, private credit and infrastructure funds, according to a person with knowledge of the process. The mix of strategies helped drive multiple buyers to the process, the person said. As of 2021, the Tesco PLC Pension Scheme had more than 340,000 members. It was closed to future service benefits in 2015, according to its 2021 Stewardship Report.
The presence of multiple buyers is also a reflection of the current market, where many large portfolio sales are going to a host of buyers, rather than one large buyer. Colloquially known as “mosaic sales,” multiple buyers are able to combine for what is ultimately a stronger cumulative price than what one buyer is willing to pay. This is the result of each buyer picking out the specific funds and strategies they are interested in and for which they are willing to pay up.
A portfolio buyer will typically demand a discount for those funds in which they have little interest and which they need to acquire along with the funds they really target.