AXA announces giant secondary deal

AXA Private Equity announced late last week that it has acquired a $1.9 billion portfolio of limited partner positions from Bank of America.

It’s the largest disclosed secondary transaction since California Public Employees’ Retirement System sold a legacy portfolio at the end of 2007 for $2.1 billion, and it is perhaps an indication that buyers and sellers are finally bridging their long-standing price gap.

Initially, the transaction looks like a win-win for both AXA and BoA. The financial terms are not disclosed, but it’s safe to assume that AXA paid less than it would have if BoA were to have opened the process to competitive bidding. Moreover, continued economic recovery should help the portfolio increase in value over time.

BoA, on the other hand, likely made out much better than it would have were it to have sold the portfolio 18 months ago, when it reportedly first began considering a sale. (Furthermore, the timeline of the sale indicates that BoA’s interest in selling was perhaps not related to the proposed Volcker Rule, which would seemingly require banks to divest private equity investments. It is possible, however, that the Volcker Rule helped push the sale along).

Vincent Gombault, AXA’s fund-of-funds managing director, confirmed that the portfolio consists of 90% buyout funds, of which 30% are considered “large funds.” He says that the portfolio is considered “mature,” with about 60% of commitments already called down.

Gombault says that he expects to see several more secondary deals of $1.5 billion or more in value over the next 12 months.

He declined to discuss specific pricing for the BoA deal, but said typical secondary pricing right now was at a single-digit discount to net asset value (NAV). This compares to 20% to 30% discounts in December and up to 70% discounts at the peak of the financial crisis.

The last time secondary buyers regularly paid premiums to NAV was in 2006 and 2007, of up to 20 percent.

“Pricing is not as important to us as the strength of the assets,” said Gombault, who recently returned to France after an extended stay in New York due to the Icelandic volcano. “If you buy weak assets at a deep discount, your discount will be never-ending.” —Dan Primack