Whitehorse’s Robard: Secondaries market will be $250bn by 2025

Whitehorse Liquidity Partners collected $2 billion for its third fund in October and has raised $3.4 billion in committed capital since it was founded. Founder Yann Robard details how the firm structures its deals, how its strategy has evolved and what’s in store for secondaries over the next five years.

Walk us through some of the transactions you’ve closed or committed to. What types of deals were these and how did they solve issues for the counterparty?

This conversation would quickly turn into a novel if I were to describe all the types of transactions we have completed since our inception, but it is fair to say that we pride ourselves on innovation and evolution. This is what helps to set us apart and differentiate ourselves in the market. We believe we have been additive to the secondary market, at times unlocking deals that would not have otherwise transacted. Our structured, customised solutions help owners of private equity assets to accelerate liquidity on their portfolios while retaining both the upside and the flexibility. In other situations, should owners prefer an outright sale of their portfolios, we partner with buyers to provide an opportunity for full liquidity. Essentially, we are seeking to provide anyone seeking liquidity on their private equity portfolios with solutions that match their specific and particular objectives. This is what drives the scale of our market opportunity.

Do you ever do “regular” secondaries deals or hold the common equity of your structured transactions?

We will, at times, acquire a portfolio outright and thereafter create a structure around that portfolio bringing in partners to hold the common equity. Whitehorse keeps the preferred security and we syndicate the equity to third parties. In those situations, we may hold a small piece of the equity. Having said this, our reason for being continues to be to focus on structuring a preferred security for our fund. How we create that security has evolved and will continue to do so over time. Innovation is at the heart of everything we do.

Have you pivoted your strategy to reflect any particular market dynamics? We noticed that you now use “structured liquidity solutions” rather than “preferred equity” to describe your strategy. What caused this change?

Rather than call it pivoting, we like to call it evolution. At the end of the day, as I mentioned, we are creating structures in all transactions that we execute on. As we continued to innovate, we recognised that a structure was inherent in each one of our transactions. As such, we thought it best to update our nomenclature to structured liquidity solutions to align the description of what we do with the evolution of our organisation. Simply put, we create structures and, through structuring, a preferred security is created. The preferred security is an end result of our approach.

What’s your outlook for the secondaries market in 2020 and beyond?

Tell me what the market will do in 2020 and I will tell you my outlook for secondaries. Should we avoid the looming cycle for an additional year in 2020 and markets continue to perform, my prediction is that secondaries will hit another $100 billion year. I say another as I do believe 2019 will transact on $100 billion. If the cycle hits in 2020, the market will go through a very temporary retraction like we saw in 2009. It won’t last long, but pricing gaps will occur and slow the secondaries market for a period of six to 12 months as private equity valuations “catch up” with public market valuations.

There is no stopping the secondary market over the medium to long term. Looking past 2020, the tailwinds in this asset class are very strong. Private equity has over $7 trillion of exposure. Public markets are shrinking, and the alternative asset class is the net beneficiary of funds flow. The issue with the alternative asset class has always been illiquidity. And the secondary market provides liquidity to an otherwise illiquid asset class. Add the innovative nature of the secondary market and it results in very strong tailwinds in this market for further substantial growth.

Fast forward to 2025 and there is no reason the market can’t be $200 billion to $250 billion a year. I don’t mind being on record with this prediction as I do fully believe in the strong market growth ahead of us in the secondary market. The white space opportunity continues to be significant.

Yann Robard is founder and managing partner at Whitehorse Liquidity Partners, a Toronto-headquartered preferred equity specialist. Prior to Whitehorse he spent almost 14 years at Canada Pension Plan Investment Board where he established its secondaries and co-investment programme.