GP-led secondaries help drive deal volume in first half: Greenhill Cogent

  • Pensions, sovereign funds largest percentage of H1 sellers
  • GP-led deals represented large percentage of sellers
  • Total first-half volume breaks records

GP-led secondary activity like restructurings and tender offers hit an estimated $7 billion in the first half, representing a record 26 percent of total secondary volume so far this year, according to Greenhill Cogent’s first-half secondary volume report.

GP-led secondaries have grown in popularity among managers and limited partners as a way to deliver liquidity to investors in older funds and give GPs more time to manage out older assets.

Some GP-led deals, like tender offers, also come with injections of primary capital into new funds, helping boost fundraising processes.

“We continue to believe that GP-led transactions can create benefits for both GPs and LPs when conceived and structured appropriately,” the report said.

In some cases, the benefit falls more on the GP side, especially in the case of stapled primary capital into new funds.

“As such, we expect LPs to continue to seek a greater voice earlier in the conception of GP-led transactions in the form of adviser selection, transaction structure, LP/LPAC approval thresholds and process/timeline,” the report said.

GP-led deal volume hit an estimated $14 billion last year, up from $9 billion in 2016, Greenhill Cogent previously reported in its year-end volume report.

Greenhill Cogent estimated total secondaries volume in the first half at $27 billion, beating the year-earlier volume of $22 billion. Helping drive volume this year was an increase in deals over $500 million in value, the intermediary said.

Some of the big deals in market this year include TH Lee, which is considering a liquidity process for its $8.1 billion Fund VI; Jordan Co, which is exploring liquidity processes on its second and third funds (and also looking for a staple of fresh capital into Fund IV, which is in market, targeting $3.2 billion); and Providence Equity, which ran a tender offer on its seventh fund and included a staple into Fund VIII, in market targeting $5 billion with a $6 billion cap.

Traditional LP stake sales continue to help drive the market. Pension and sovereign-wealth fund sellers on the secondary market represented the largest proportion (20 percent) of sellers in H1, followed by GP-led deals (19 percent), Greenhill Cogent said. Pension/sovereign funds as sellers were down from 2017, when they represented 24 percent, according to the report.

Traditional LP sale processes in the market this year include Los Angeles County Retirement Association, Maryland State Retirement and Pension System and Alaska Permanent Fund Corp.

Volume keeps ticking up in part because pricing is robust, bringing more sellers to the table, sources have told Buyouts. The average high secondary bid for all funds was 93 percent of net asset value in the first half, unchanged from 2017, the report said.

Buyout funds continued to be the highest pricing strategy at 98 percent of NAV, the report said.

Pricing likely will remain strong as long as firms have money to deploy. And that will continue to be the case for some time, as dry powder for secondaries funds has climbed to an estimated $121 billion, the report said.

Greenhill Cogent expects record secondaries fundraising this year with four of the largest buyers actively raising funds — including Lexington Partners and Ardian.

Strong fundraising will continue to drive “demand, pricing and, in turn, additional volume,” the report said.

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