CPPIB closes $1bn-plus LP portfolio sale even as most secondaries activity pauses

Ardian was lead buyer on the deal, while Lexington Partners also was a buyer. The deal closed on March 31, two sources said. 

Canada Pension Plan Investment Board managed to close the sale of a large portfolio of brand-name private equity stakes valued at around $1.2 billion, despite the pandemic jarring markets, three sources told Buyouts

Ardian was lead buyer on the deal, while Lexington Partners also was a buyer. The deal closed on March 31, two of the sources said. 

The portfolio included stakes in brand-name managers, including CVC Capital Partners, Blackstone Group and Apollo Group, one of the sources said. 

The deal closed at a time when many regular M&A deals, as well as secondaries transactions, are on hold as buyers and sellers wait for more transparency around valuations of assets. Private equity asset valuations lag by about a quarter or more, so performance marks as of Dec. 31 are just being finalized now and won’t be out until later this month or May. 

Valuations as of March 31, which will include the initial impacts of the coronavirus downturn, won’t be out until mid- or late- summer. 

This lag in reporting makes it hard for buyers to price transactions right now. LP portfolios can be especially challenging to price because they generally contain multiple funds with numerous underlying assets, all of which have to be valued. 

In the case of CPPIB, a purchase and sales agreement was signed well before the pandemic. This means buyers would have little recourse to get out of the deal. Many M&A deals include a material adverse condition provision buyers can use to get out of deals, but invoking a MAC clause is considered a fairly extreme move that can lead to lawsuits. 

It’s also not clear if this deal, or most secondaries deals, contain provisions to break signed deals. “It’s very rare that someone is going to walk from a PSA,” one of the sources said. “If it wasn’t signed, then absolutely.”

Another factor in this deal is that Ardian is one of the largest LPs in the market, and likely has relationships with the managers of the funds in the portfolio. Because this was considered a high-quality portfolio, it’s likely buyers on the deal still had confidence in the underlying assets to pull through the downturn. 

Those funds, like most investments, “will face write-downs,” one of the sources said. “You just hope they can withstand the pain.”

While CPPIB got done, some other large LP portfolio sales have been paused for now, sources said. These include sales from GIC, Singapore’s sovereign fund, and a large portfolio sale from Abu Dhabi Investment Authority, sources said.

Although the sales were paused it doesn’t mean the transactions were terminated; the expectation is these sales will come back to market perhaps in the second half of the year, sources said.

Last year, total secondaries volume totaled around $86 billion, according to UBS. LP portfolio sales represented 62 percent of total volume last year, UBS said.