Limited partners are getting the short end of the stick when participating in GP-led deals because they are often excluded from processes and have little choice but to take what is on the table.
That is the view of Shawn Winnie, a senior portfolio manager and decade-long veteran of the Michigan Department of Treasury, who is leaving his position to launch a solo consultancy business advising LPs.
In a interview with Secondaries Investor, Winnine, who is directly responsible for over $1.5 billion in alternative investments, said in his experience, some GP-led deals are a matter of survival for the manager, while others are simply a matter of convenience.
“There are plenty of limited partners who go into these transactions not trusting the general partners,” Winnie said. “To an LP, the very best you can get is the idea that the auction process was fed by somebody that had an incentive to dial the number down, and then you got the best possible price you could get out of that.”
Managers running GP-led processes are best served by stakes trading at a low price, and this has created bad feelings between LPs and GPs, something that is difficult to fix, Winnie said.
[quote]One thing that limited partners are very bad at is working with each other and co-ordinating a response[/quote]
Winnie’s last day at Michigan‘s $65 billion pension administrator will be 9 September, and he then plans to hit the road meeting with LPs across North America, plus Europe and South-East Asia. His goal is simple: talk to LPs about their opinions on GP-led deals, find out their concerns, then communicate that to other LPs so they can be at the front end of the process instead of the back.
With GP-led deals growing to between 20 percent to 25 percent of the secondaries market in recent years, advisory firms are increasingly looking for an edge in deals through ever more complex and innovative transactions. Such transactions are expected to increase to as much as 35 percent of the market as record-high levels of dry powder chase smaller amounts of potential dealflow.
Asked whether he felt there was a fourth role to play in GP-led deals in addition to that of the GP, LPs and advisors, Winnie said he viewed his new strategy as that of coach.
“One thing that limited partners are very bad at is working with each other and co-ordinating a response, particularly on things where you [have to] co-ordinate whatever power you have – whether it’s market power, or power in a limited partnership agreement,” Winnie said.
For this service, Winnie, a former lawyer, said he is not planning to charge any fees, at least for the first two years. His business model is to provide free advice as an unaffiliated agent and that having someone who has no stake in the outcome should help all parties involved.
“That’s what I’m going to offer to do,” he said. “We’ll see if anybody takes me up on it.”