Over recent months, Clearlake Capital got close to acquiring asset manager Portfolio Advisors, primarily as a way to bolt on secondaries investing functionality to its franchise, three sources have told Buyouts.
The deal, which never made it to completion, is an example of traditional buyout firms expanding into the evolving secondaries strategy, which hit its peak activity volume last year at more than $130 billion. The expectation is that volume will fall back this year due to broader market turmoil and pricing discrepancies that are delaying deals and causing some sellers to pull back.
Clearlake is among a host of firms exploring building out or bolting on secondaries. Others include Oaktree Capital Management, which acquired 17Capital; Ares Management, which took over Landmark Partners; CVC Capital, which acquired Glendower Capital; and Franklin Templeton, which bought Lexington Partners.
Portfolio Advisors earlier this year engaged Moelis & Co to explore several unsolicited offers the firm received from potential strategic partners, according to Brian Murphy, managing member with the firm. The asset manager has been an investor in Clearlake funds and the two firms know each other well, Murphy said.
The deal likely didn’t happen because Clearlake was primarily interested in secondaries, which makes up over a third of Portfolio Advisors’ total business, sources said. Portfolio Advisors will continue to engage with interested buyers, Murphy said.
“We’re excited about our prospects and the future of the business,” Murphy told Buyouts. “Sometimes strategic relationships become available that make sense.” The firm took a strategic investment from insurance company Everest Re several years ago, which it bought out earlier this year, Murphy said.
One common theme among interested parties was a desire to build out secondaries capabilities, Murphy said. “What people were surprised to see was how big we were outside of secondaries … for someone who just wants secondaries, we’re not a great fit,” he said.
Spokespeople for Moelis and Clearlake declined to comment.
Portfolio Advisors, formed in 1994, has diverse areas of business, including private equity primaries, secondaries and co-investments. It also focuses on private credit, real estate and advisory, according to its website. It manages about $38.3 billion across strategies.
The Darien, Connecticut firm closed Portfolio Advisors Secondary Fund IV on $2.67 billion earlier this year, beating its $1.5 billion target. The firm in 2020 hired Stephen Sloan, global head of secondaries, from Greenhill & Co.
Other Greenhill executives Briac Houtteville and Brian Mooney joined last year.
Clearlake is no stranger to secondaries. The firm pioneered a strategy of creating a family of single-asset continuation vehicles, which it calls its Icon funds, to hold individual companies moved out of older funds. The firm worked with Evercore on five such deals. It’s not clear if Clearlake remains interested in buying a secondaries group.
More recently, the firm has been running a deal alongside Insight Partners to move two assets, Diligent and Appriss, out of older funds and into a continuation pool, Buyouts previously reported.
Along with firms acquiring existing secondaries groups, some are hiring senior people to build out secondaries capabilities. This was the case with Apollo Global Management, which hired three secondaries executives from BlackRock to work on private equity secondaries. Audax Group hired two executives from DWS Group to build out a secondaries strategy, The Wall Street Journal reported.