SECONDARIES special report 2017

Transcription

1 SECONDARIES special report 2017

2 OVERVIEW Secondary to none Early figures indicate the secondaries market could hit fundraising and transaction records in 2017, Marine Cole finds Secondaries powerhouse Ardian has had a busy year. In the first half alone, the firm sold two portfolios totalling nearly $2 billion, completed the purchase of the largest stapled transaction ever the $2.5 billion deal with Abu Dhabi s Mubadala Capital and was busy raising its latest secondaries infrastructure vehicle, ASF VII Infrastructure fund, targeting $1.5 billion. Ardian isn t the only player taking a broader view of the secondaries market. Take Landmark. In April, the private equity and real estate secondaries firm provided preferred equity from its latest private equity vehicle to finance the purchase of a minority stakeholder in Clearlake Capital s management company. It also bought 650 million-worth of stakes in a 2010-vintage European mezzanine fund managed by ICG. This is testament to how diverse the secondaries market has become. Increasingly, it s not only traditional limited partners using the market to manage their portfolios. Secondaries buyers, funds of funds and general partners and not just the struggling ones are taking advantage of secondaries transactions to manage their funds (see p. 50). This diversification comes as the market is reaching new fundraising records. In the first half of the year, at least $23.6 billion was raised by funds dedicated to the strategy, according to PEI data, slightly above previous high of $22.4 billion in The three largest funds that closed in 2 the first half of 2017 were Blackstone s Strategic Fund VII on $7.5 billion, AlpInvest Secondaries Program VI on $6.5 billion, and Neuberger Berman s NB Secondary Opportunities Fund IV on $2.5 billion, according to PEI data. Goldman Sachs is also nearing a final close on more than $7 billion for its Goldman Sachs Asset Management s Vintage VII. Some in the market fear there might be too much money flooding into secondaries, which could create a slowdown in fundraising as returns dwindle. It s going to put pressure on returns, says Sunaina Sinha, founder and managing partner of advisory firm and placement agent Cebile Capital. If returns fall it will be a concern for future commitments. But according to Sabina Sammartino, partner and head of the secondaries advisory team at Mercury Capital Advisors, the record-high fundraising continues to support a robust price environment and conditions remain favourable to sellers. Average pricing for deals closed in the 12 months to June was around 94 percent of net asset value, according to a report by advisory firm and placement agent Campbell Lutyens. Pricing is also being maintained by rising net asset values. It does, however, vary greatly depending on the quality of the GPs and the performance of the funds trading. Some of the best change hands at a premium. Given the strong level of competition in straightforward LP portfolio ON THE RISE Secondaries deal volume ($bn) Source: Greenhill Cogent Source: Campbell Lutyens June Survey A NEW RECORD Secondaries fundraising ($bn) Source: Private Equity International GETTING PRICEY Secondaries buyers on the current environment 24% fair 74% expensive 2% cheap

3 transactions, secondaries investors have to be more innovative and are increasingly looking at new types of transaction, new sectors, and new ways of delivering target returns to their investors, Sammartino says. We re seeing a broadening in the types of investments, which is a positive development. Deal volume is also growing after a slight dip in 2016, with $22 billion-worth of transactions closed in the first half of the year, according to data from Greenhill Cogent. Market participants are anticipating a record year for deal activity, particularly fuelled by US transactions. Global secondaries volume was up meaningfully in the first half of 2017 relative to the first half of last year, with an increase in the number of $1 billion-plus portfolios brought to market, says Andy Nick, a managing director with Greenhill. Given that the second half of each calendar year has historically been busier than the first, we anticipate that secondaries volume for the full year could exceed $40 billion. Typical sellers have included public pension plans and university endowments, which are continuing to actively manage their portfolios, while primary funds of funds, separate account managers and certain secondaries buyers are increasingly selling to liquidate and wind down older funds. This year,there has been an increase in the liquidation of mature funds of funds, which are seeking to lock in gains and manage the ultimate liquidty of older vintage funds, says Verdun Perry, senior managing director and co-head of Blackstone s Strategic. 3 Given the strong level of competition in straightforward LP portfolio transactions, secondaries investors have to be more innovative Sabina Sammartino Like many in the industry, Perry is relaxed about the amount of dry powder available for secondaries, pointing out the market only has between two and two-anda-half years of supply available, compared with five to six years in the primary market. Secondaries supply and demand characteristics are well within reasonable range, he says. We re still in a relatively comfortable investing environment. Indeed, there s no indication that deal volume will slow down. Outside of the increasingly diverse investor base that is accessing the secondaries market, the fund of fund managers which raised capital in the time frame are approaching their final extensions. The growing desire for liquidity from underlying limited partners coupled with pending term expirations should drive additional secondaries buying opportunities from these funds of funds over the next several years, Perry says. The rise comes against a background of continued high distributions to LPs, which are struggling to find opportunities to reinvest their cash. If distributions fall, some LPs may be more in need of cash and increase their use of the secondaries market to sell non-core fund commitments. Additionally, the bulk of the activity continues to focus on pre-crisis vintages the average vintage of funds sold is Although the market will see fewer precrisis vintages trading, funds from , which were busy fundraising years, will sustain healthy dealflow for the next few years. Overall, secondaries market participants are confident that 2017 will be another strong year. At this point, only a public market correction could derail that, and even that isn t dampening spirits. If you have a big correction in the equity market, I think the volume will slow down for six to nine months at least, says a secondaries buyer. But a big dislocation would be a challenge and an opportunity. n

4 THE SI 30 A sector on the up Record raises and deals have characterised the 12 months since our first ranking of the top 30 managers, writes Adam Le The top 30 secondaries managers over the last five years have raised an eyewatering $190 billion in that period. But the figure should come as no surprise to anyone keeping a keen eye on the market. In the 12 months since we published our debut SI 30 ranking which tracks capital raised in the last five years several records have been broken. For private equity secondaries alone, fundraising hit a first-half high this year of$24 billion, bolstered by at least seven final closes above $1 billion. This year, again, the market leader is clear: Ardian. The firm broke the infrastructure secondaries record by raising $1.7 billion for ASF VII Infrastructure, and in the last five years it has amassed almost double the amount of capital as secondplaced Strategic. Secondaries has come of age, says Benoît Verbrugghe, Ardian s US head. Major institutional investors are using the market, which has long shed its distressed sellers only image. There is still plenty to come from the secondaries market, particularly as the private equity industry grows. At least nine of the 30 firms that made our ranking this year are fundraising, a sign LP appetite for secondaries is yet to reach a peak. Five join our ranking for the first time: Intermediate Capital Group, Montauk TriGuard, Aberdeen Asset Management, Altamar Private Equity and Stafford Capital. Many of these firms focus on niche strategies such as restructurings and real assets. A lot of secondaries funds are trying their best to differentiate themselves in different parts of the market, says Mark McDonald, global head of secondaries advisory at Credit Suisse s private fund group. Mega-funds are writing $1 billion-plus cheques to buy very large LP portfolios, and you ve got small niche funds trying to do smaller, quirkier, off-market direct secondaries and GP-led deals. TOP 10 FIRMS BY CAPITAL RAISED, AND... FUND MANAGER HEADQUARTERS AMOUNT RAISED ($M) 1 vw Ardian Paris 31, p Blackstone Strategic New York 16, q Lexington New York 16, p Goldman Sachs Asset Management New York 14, q Coller Capital London 12, vw HarbourVest Boston 12, p AlpInvest Amsterdam 11, q Group Zug 10, q Landmark Simsbury 10, q LGT Capital Pfaeffikon 7, Source: PEI DRY AS A BONE Dry powder estimates range from $68 billion to $83 billion, according to advisory firms Evercore and Greenhill Cogent respectively, which means market participants are having to push innovation and make creative deals. These include Harbour- Vest take-private of SVG Capital, Ardian s $2.5 billion stapled deal with Abu 4

5 ... THE BEST OF THE REST FUND MANAGER HEADQUARTERS AMOUNT RAISED ($M) 11 vw NB Alternatives New York 5, vw Pantheon Ventures London 5, p Hamilton Lane Bala Cynwyd 3, q Madison International Realty New York 3, p Adams Street Chicago 2, q Portfolio Advisors Darien 2, p Pomona Capital New York 2, q DB Private Equity Cologne 2, q SwanCap Munich 2, p JPMorgan Asset Management New York 2, p Morgan Stanley Alternative Investment West Conshohocken 1, q Committed Advisors SAS Paris 1, p Newbury Stamford 1, q Industry Ventures San Francisco 1, v Intermediate Capital Group London 1, v Montauk TriGuard Irvine 1, Dhabi s Mubadala Capital and BC stapled process to aid fundraising for its 10th flagship buyout fund. Increasingly you re seeing transactions happen with these higher quality GPs with good assets and bigger portfolios, says David Atterbury, managing director at HarbourVest. His firm is one of the 12 GPs in the SI 30 that held final closes in the 12 months to June, amassing $4.8 billion for its Dover Street IX fund. There s a big market out there in terms of funds that are in year eight, nine or 10 of their lives, and there is demand from investors into secondaries funds to access that market. Taking that into account, and with primary dry powder at $1.5 trillion, the peak for secondaries fundraising could be some way off. n 27 v Aberdeen Asset Management Aberdeen 1, p StepStone Group New York 1, v Altamar Private Equity Madrid 1, v Stafford Capital London 1, Source: PEI v Not present in 2016 SI 30 METHODOLOGY How we determine the 2017 ranking The SI 30 ranking is based on the amount of equity capital raised for dedicated secondaries pools of capital over a roughly five-year period. This year, the window spans from 1 January 2012 to 30 June Accuracy, confidentiality We give highest priority to information that we receive from or confirm with the fund managers themselves. When secondaries firms confirm details, we seek to trust but verify. Some details simply cannot be verified by us and in these cases we defer to the honour system. In order to encourage co-operation from secondaries fund managers that might make the SI 30, we do not disclose which firms have aided us on background and which have not. In the event we do not receive confirmation of details from the firms themselves, we seek to corroborate information using firms websites, press releases, news reports and limited partner disclosures, among other resources. Definitions Secondaries capital: For the purpose of the Si 30, the definition of secondaries capital is: capital raised for a dedicated programme of investing directly into the secondaries market. This includes equity capital for diversified private equity, real estate, infrastructure, buyout, growth equity, venture capital and turnaround or control-oriented distressed secondaries investment opportunities. We also count any portion of a fund of funds earmarked specifically for secondaries investments. Capital raised: Capital definitively committed to a secondaries direct investment programme. In the case of a fundraising, it means the fund has had a final or official interim close after 1 January We count the full amount of a fund if it has a close after this date. We count the full amount of an interim close (a real close, not a soft-circle ) that has occurred, even if no official announcement has been made. We also count capital raised through other means, such as co-investment vehicles. What does NOT count as secondaries? Direct private funds: We do not count capital raised for funds that invest directly into the primary markets, whether this be for private equity, real estate or infrastructure. Hedge funds: We do not count hedge funds, meaning funds that target liquid securities or trading strategies. Opportunistic investors: Some large entities have the ability to carry out secondaries deals on an opportunistic basis. We do not count these groups because there is no hard capital allocation to their direct-investment programmes. Debt, including mezzanine debt funds: We only count equity investment funds for this ranking. All debt funds, including mezzanine debt funds, will not be counted towards the ranking. PIPE investments: The Si 30 counts private capital raised for secondaries investments. Therefore, we do not count capital raised for PIPE deals. Deal-by-deal: We do not count capital raised on a deal-bydeal basis to be invested into secondaries opportunities. 5

6 SI 30 Location, location, location Where the big fundraisers are headquartered Landmark $10.01bn Goldman Sachs Asset Management $14.15bn Blackstone Strategic $16.80bn North America Switzerland UK EU NB Alternatives $5.64bn Pomona Capital $2.65bn Portfolio Advisors $2.66bn Hamilton Lane $3.57bn Madison International Realty $3.25bn Morgan Stanley Alternative Investment $1.99bn HarbourVest $12.42bn Lexington $16.49bn JPMorgan Asset Management $2.03bn Newbury $1.80bn Adams Street $2.97bn Montauk TriGuard $1.17bn StepStone Group $1.04bn Pantheon Ventures $5.23bn Coller Capital $12.65bn Ardian $31.58bn Industry Ventures $1.43bn Intermediate Capital Group $1.17bn Aberdeen Asset Management $1.10bn Stafford Capital $1.02bn SwanCap $2.22bn DB Private Equity $2.27bn LGT Capital $7.26bn Group $10.44bn AlpInvest $11.97bn Committed Advisors SAS $1.83bn Altamar Private Equity $1.03bn 6