The large portfolio sale is dead. Long live the large portfolio sale

This week, Secondaries Investor reported that Canada Pension Plan Investment Board has completed the sale of a $2.5 billion portfolio of fund- and co-investment stakes. The deal is understood to have been a mosaic sale, with different segments sold to a handful individual buyers, each with their own terms and pricing. Goldman Sachs Asset Management and Singapore’s GIC were among the buyers.

The deal is among the largest portfolio sales of all time, up there with Norinchukin Bank’s $5 billion sale to Ardian, Australian sovereign wealth fund Future Fund’s A$6 billion ($4.3 billion; €3.6 billion)-worth of sales over the past year, and the California Public Employees’ Retirement System’s $3 billion sale of real estate fund stakes in 2015. It is also the first sizeable portfolio sale to launch and close during the covid-19 crisis.

As the new global head of secondaries at PJT Partners, David Perdue, told Secondaries Investor this week, the difficulty in conducting due diligence on large, diversified portfolios has caused GP-led deals to dominate dealflow since the pandemic began. Against this backdrop, how did the CPPIB deal get done?

For at least two years, large limited partners, from PSP Investments to Future Fund, have been offloading portfolios in expectation of a downturn. CPPIB made around $500 million of secondaries investments in the 12 months to the end of March, down almost 90 percent on the previous fiscal year, citing “two very active deployment years and a cautious market outlook”. It had already offloaded a sizeable portfolio in early 2020 to Ardian and Lexington Partners.

The huge reduction in market activity during the second quarter has led to several buyers falling behind on their deployment schedules, Secondaries Investor understands. The CPPIB deal priced at a significant premium to March marks, in part due to the inclusion of several newer vintage funds. However, it also suggests action-starved buyers were willing to pay a little more to get their hands on good assets.

The identity of the seller should not be overlooked either, says one New York-based portfolio manager. CPPIB’s motives as a seller are well understood: it will sell large portfolios of positions to de-risk or rebalance its portfolio, but does not have to accept any old price.

“Potentially, when new sellers come to market, there’s a question of whether they are just looking to price check or are they distressed sellers trying to market themselves as not?” the portfolio manager says. “With CPP, there was no question of whether they needed the money – they don’t – so the focus was on the quality of the assets.”

Even with the uncertainty brought about by covid-19, the most sophisticated LPs will continue to sell down portfolios. There should be no shortage of buyers to transact with in the months ahead.

Secondaries Investor is aware of one large portfolio being brought to market by a sovereign wealth fund in H2. Know of any others? Contact the author at rod.j@peimedia.com