The next wave of programmatic secondaries sellers

Kaiser Permanente has returned to the secondaries market with its third billion-plus portfolio in three years. As first-timers come to market, the secondaries market is hopeful more LPs will take a regular approach in the years to come.

Kaiser Permanente is back out in market with yet another sizeable LP-led process – its third process in three years.

The massive non-profit healthcare organisation is shopping a multi-billion-dollar portfolio of private equity fund stakes with the expectation that around $1 billion-$2 billion will transact, sources told affiliate title Buyouts and Secondaries Investor.

This follows Kaiser’s shopping of a $6 billion portfolio in the market, which largely completed last April, and its sale of about $1.5 billion of PE fund stakes in 2022. The Oakland-headquartered system is selling at a clip that matches the rapid build-up of its private equity portfolio, which grew from about $6 billion in private equity NAV in 2019 to $33 billion in 2021.

Kaiser sits comfortably within a list of regular programmatic secondaries sellers. These are typically repeat, discretionary sellers using the secondaries market to actively manage their allocations, Ben Pearce, head of LP secondaries advisory in EMEA at Campbell Lutyens explained.

Many of the North American pension funds tap the secondaries market regularly, with a number of Canada’s largest systems particularly active. Funds of funds and secondaries firms themselves are also regular users of the secondaries market.

Improved pricing has coaxed a number of sellers to the secondaries market this year with single-digit discounts achievable for quality buyout portfolios, making these transactions a lot more palatable when they’re presented to investment committees. By and large, LPs are coming to market to sell off stakes in non-core funds and relationships to free up capital and make room for commitments into new funds.

While these larger repeat sellers have buoyed volume over the past 10 years – 50 LPs have accounted for half of secondaries market deal volume over the last decade, according to data from PJT Partners – sources Secondaries Investor spoke with anticipate that an increasing number of first-time sellers in the secondaries market will become regular programmatic sellers.

These processes tend to be quite labour intensive, making them harder for smaller allocators to do regularly, one source says, which presents a barrier for some. However, while the first deal is a hard slog, the following processes become easier with experience, Jarid Colucci, managing director at BlackRock, said. “There’s a lot of work that goes into getting the first sale done. That’s true for any big organisation… but once they go through it once, it’s actually pretty simplistic.”

Albeit not with the same eye-catching dollar amounts of their North American peers, the number of programmatic sellers in Europe and Asia is “certainly growing quickly”, Campbell Lutyens’ Pearce said. Roughly half of Campbell Lutyens’ global LP secondaries book is made up of repeat sellers, with the remainder new clients and mostly first-time sellers.

“We’re seeing a much broader cross-section of LPs approaching the market for the first time – and when they see what value the market can offer and how deep, mature and efficient it can be, many will be added to the list of repeat sellers using the market to more actively manage their portfolios,” Pearce added.

Programmatic sellers are quicker and more decisive in making the call to come to the secondaries market when they feel market conditions are right. Seeing these large-scale portfolios come to market will give others confidence to follow suit. If the secondaries market can prove its efficiency, it will see more regular sellers come back for another round in the years to come, presenting an increased pool of opportunity.

Furthermore, establishing secondaries as a programmatic path to liquidity could be vital in helping the industry develop its retail base of fund investors, who will require easily accessible paths to liquidity.