Secondaries in Session
I spend a lot of time at conferences. I guess it’s just a part of the job. It’s not necessarily a complaint; the networking and sharing of ideas can be incredibly useful. It’s just that occasionally they can be fairly uninspiring places. Panellists regurgitate the same old mantra whilst audiences sit there, ears attuned to the speakers, eyes fixated on their iPhones, taking nothing in … or maybe that’s just me. In any case, I couldn’t help but notice a bit of complacency creeping into more recent industry events.
The bull run had been so strong, and the standard playbook so effective, that there was little need to innovate. The recent shake up however has breathed new life into proceedings. The uncertainty around valuations, against the backdrop of volatile public markets, has imbued discussions with an inkling of crisis, and as we all know: where there is crisis, there is opportunity. Nowhere was this more apparent than in the Secondaries section at the London SuperReturn a few weeks ago. The room was packed and not an iPhone in sight. Some of the top agents in the market had wheeled out the big guns who were all jostling for capital, and I have to say it all sounded quite compelling. Accordingly, we thought it appropriate to share a few of our findings with you to help you better understand and access this unique corner of the PE universe.
The first secondary transaction occurred in 1982 but only really became a mainstay within Private Equity in the mid to late 90s, pioneered by a few industry titans such as Jeremy Coller who now runs an eponymous global investment firm, amongst other philanthropic activities. The underlying premise here is liquidity. A market participant provides an investor in an illiquid asset class with liquidity, and therefore expects a good deal. If you are inclined to take that deal because you need cash for other things, then you should be prepared to take a haircut on the value of those investments. This is the oil which greases the engine and is particularly relevant when discussing LP-led secondaries, the original and (until recently) most popular format.
