On Wednesday almost 200 people gathered at 601 Lexington Avenue in New York for law firm Kirkland & Ellis’s Liquidity Solutions Academy – a full day of secondaries panels and seminars covering everything from reps and warranties insurance to tax issues, regulatory scrutiny and single-asset deals.
Industry veterans Jon Costello of PJT Partners, Nigel Dawn of Evercore, Holcombe Green of Lazard and Andrew Sealey of Campbell Lutyens united for the first time ever in a fireside chat moderated by Secondaries Investor. Here’s what the four expect the secondaries market has in store for 2020 and beyond.
The GP-led explosion is around the corner
A seismic shift in the market could occur within two years, according to Green. “In 2021 or 2022 my big prediction would be that volume in the GP side of the market exceeds the LP side of the market.” Overall, absent some kind of extreme macroeconomic event, there won’t be a dramatic change in the trajectory of the market, and deal volume should increase across the board, he added.
Rise of the machines
The online trading platforms expected to emerge will facilitate more LP trading volume, according to Dawn. “I suspect given some of the technology initiatives being discussed in the market around the LP business, and the potential for use of machine learning, the long term market impact could be significant,” he said. With this comes better standardisation of documentation – the lack of which has constrained the growth of the market thus far. This could and should increase volume “materially”, Dawn said.
“The parallel is the derivative market. When standard ISDA documentation was introduced, volumes increased. It won’t happen next year, but I think this will be a change in terms of LPs having platforms where they’ll be able to transact, certainly on single interests but likely on multiple interests.”
Creativity will continue
The secondaries market has arguably been materially more innovative than the buyout market in its evolution over the years, leading to the creation of different structures and ways it can have relevance for the market, said Sealey. “We would hope to see further innovation and new applications of this type of finance.” Any macro downturn would most likely only be a “blip” in the market’s longer term growth, he added.
New entrants will give chase
Many large financial platforms that run multi-product businesses have their eyes on the GP-led market and want to enter on a large scale, according to Costello. “You could see another $10 billion-plus type player emerge really quickly, particularly in some of these new areas.” More entrants are a good thing, Costello added. “That will be great for the overall growth of the market.”