Deals are being done faster than ever, with binding bids coming in within a week or two, and large sales completing in half the time. That’s the key takeaway from Greenhill Cogent’s half-yearly volume and transaction data, but there are a couple of other driving factors too.
While pricing and volume figures for H1 weren’t surprising, being broadly in line with 2014, deals are getting faster, more varied and more strategic. Here’s more detail on how those three elements are shaping the market.
Deal-makers are putting their foot down
Secondaries transactions are being completed much faster than they used to be.
“In certain select instances, very large transactions are receiving binding portfolio bids within one to two weeks,” Greenhill Cogent wrote. “In other cases, large portfolio sales that would have historically taken three months to complete are now being taken to market, bid and closed in six weeks or less.”
The firm thinks there are three main factors contributing to that increase in the speed of transaction completion.
Sellers and GPs are all becoming more familiar with the secondary processes, including legal documentation. Buyers have a much broader universe of funds that they follow and price on a regular basis. Some buyers are pre-empting the typical auction process by delivering a fully-binding offer at the first round bid deadline or at the very least prior to the final bid deadline.
Portfolios for sale are increasingly diverse
Buyout funds are still the most popular on the secondaries market, but they no longer dominate all other types.
“In the recent past, buyout funds have generally represented over 50 percent of the funds sold,” according to the report. In H1 2015, buyout funds represented 37 percent of the funds marketed, while real estate and venture comprised 32 percent and 23 percent respectively.
The growth of real estate is a story of its own (helped by CalPERS’ pledge to sell $3 billion-worth of its holding in the sector), but also part of a move towards a less monolithic market.
As part of this trend, sellers are also increasingly marketing multi-strategy portfolios, bundling together portfolios that aren’t obviously complementary such as buyout and infrastructure or venture capital and real estate.
The vast majority of LPs use the market strategically
The factor driving most LPs to sell on the secondaries market is a desire to reposition their private portfolios, according to Greenhill Cogent, which estimated about 70 percent of the sellers it advised in the first six months of the year had a strategic desire to reposition the portfolio.
“This may take the form of a shift in focus from large buyout to small/mid-market buyout or a migration away from fund investing toward direct investing,” it wrote.
Just last week, John Drake, senior investment officer in private equity at the State of Wisconsin Investment Board (SWIB), told an audience of private equity specialists at an industry conference that the pension fund has been using the secondaries market to keep its portfolio well managed.
“We’re not looking to reduce the number of managers but we’re shifting our portfolio to be well balanced in the lower end of the market,” he said, adding that SWIB has also used the secondaries market to get rid of GPs with fees that are too high.
Continued high valuations and strong demand is also helping these strategies.
What’s your view? Get in touch at firstname.lastname@example.org. We’ll continue to follow these trends as they develop so stay tuned for more coverage in the weeks to come.