Another large LP portfolio is set to hit the secondary market as activity continues its gradual ramp-up from the slowdown in the latter half of last year.
Cathay Life Insurance is prepping a portfolio of mostly infrastructure fund stakes that could be sized at more than $1 billion, two sources told Buyouts. The process is still in its early days and it’s not clear when the sale will go live.
No one from Cathay Life responded to a comment request.
The Taiwanese company, with about $232.3 billion in assets, is said to be working with adviser Campbell Lutyens on the offering.
The portfolio, while not an offering of PE fund stakes like those being shopped by Kaiser Permanente and Norinchukin Bank, is one of the large secondary deals to hit the market this year. Secondary activity has been poised to increase amid pent-up selling demand from overallocated investors in search of liquidity.
Yet, macroeconomic shocks continue to inject uncertainty into the market, making it tough for buyers and sellers to come to terms on pricing. Just as the market seemed to be stabilizing this year, Silicon Valley Bank collapsed, spinning global economies into crisis mode.
Since last year, LPs have had to contend with average discounts of around 15-20 percent of net asset value, Buyouts has reported. The discount has kept many sellers on the sidelines, with an expectation that as private markets asset valuations fall more in line with public markets, LPs will get more comfortable selling at discounts.
However, private equity valuation marks also are not falling inline with public markets, with year-end valuations coming in around flat to slightly up from the third quarter, sources have told Buyouts.
Infrastructure secondaries is a newer category of the niche market. The asset class represented only about 4 percent of the funds sold in the market in 2022, a decrease from the 6 percent it represented in 2021, according to Campbell Lutyens’ annual secondaries volume report.
“Credit and infrastructure saw little or no change in their market share, which reflected their structural advantages and resiliency in the face of tough economic conditions,” the report said.
Overall, Campbell found about $106 billion of total secondaries volume last year, commensurate with other volume reports that all showed declines in activity. LP secondaries led the way in terms of market share, and the expectation is that those portfolio sales will continue to dominate the market this year. The three large offerings from Kaiser Permanente, Norinchukin Bank and Cathay Life could lead the way in opening the market to more robust activity.
“Everything has gotten a little delayed as everyone takes a pause and tries to see what, if anything, there is to be concerned about,” a secondary adviser told Buyouts. “The market is trending toward a rebound… but the real catalyst to open the floodgates [on secondaries sales] is to get the discount down.”