Some secondaries market participants may be spending the summer on the beaches of Nantucket or at Bohemian Grove, but Secondaries Investor has been burying its nose in advisory firms’ mid-year reports.
What’s also interesting is that changes at LPs have been a big driver of dealflow. According to Greenhill Cogent’s report, investment team turnover and shifts in strategy drove more than 20 percent of limited partner portfolio sales in the first half. That’s almost $20 billion in deals because a new chief investment officer or asset class head decided to change tack.
Asset disposals have become “one of the first orders of business” for such LPs, Greenhill noted. High pricing – average bids across all strategies remained at 93 percent of net asset value compared with full year 2017 – is also allowing them to accelerate their strategy shifts.
Florida State Board of Administration is one institutional investor considering a large sale. The $205 billion US pension has identified 20 investment managers in its private-equity portfolio as non-core and is considering a sale worth at least $500 million, as the Wall Street Journal reported this week.
“Secondaries have become another tool to manage our portfolio and one that I believe we will increasingly use in the future,” John Bradley, senior investment officer at the SBA, told us in mid-July.
There is also a mammoth amount of capital available for secondaries. According to Evercore, there’s at least $141 billion in buying power – dry powder plus fundraising plans between now and the middle of next year. Add leverage to the mix and there’s anywhere between $170 billion and $200 billion, Nigel Dawn, Evercore’s head of private capital advisory, tells us.
The figure is huge, but what’s more interesting is the shift in maturity it signals for the market. As of the end of July, four of the 10 largest funds in market across all private equity strategies are secondaries funds. In fact, outside Carlyle Group’s Carlyle Partners VII and 3G Capital’s Special Situations Fund V, three of the five largest funds in market are secondaries-focused, accounting for almost 60 percent of the capital to be raised. If and when there is a correction in public markets, secondaries firms will clearly be positioned to capitalise.
Is there too much capital in the strategy?
Not according to Coller Capital founder Jeremy Coller, who said in the firm’s annual report this week that the market is “broadly in balance” with around one-and-a-half years of buying power available at 2017 transaction levels. The market will be hoping he is right.