guide to the secondary market

108 Pages·2013·7.47 MB·English

GUIDE TO THE
SECONDARY
MARKET
2013 Edition
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Cogent Partners has successfully advised on more than $65 billion of private equity
secondaries since 2001.

Our experience and worldwide presence give us a superior insight and perspective
into the unique elements of every transaction. We leverage this knowledge to
provide independent and unbiased advice to our clients – wherever they are.
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Services Authority in the United Kingdom.
GUIDE TO THE
SECONDARY
MARKET
2013 Edition
Editorial Laura Kreutzer, David Smagalla, Hillary Canada, Sonja Cheung, Russ Garland, Michael Wursthorn
Research Victoria Camporeale Bradley, Sean Curran
Advertising Joseph Koskuba, James Lindquist
Production and Design Tara S. Cooper, Heather Graham, Tim White
Editorial Director Nicholas Elliott
Tel [phone] or 800.291.1800 | Dowjones.com/privatemarkets
ISBN# 1-934391-17-4/978-1-934391-17-4 | Guide to the Secondary Market published May 2013 by Dow Jones & Company, Inc., located at 1211 Avenue of the Americas, New
York , New York 10036. Dow Jones & Co. is a News Corporation company. Cover Price: $195. Contact [email protected]. Copyright © 2013 by Dow Jones & Company, Inc. All
rights reserved. No part of this publication may be reproduced in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage
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GUIDE TO THE SECONDARY MARKET | | 3
Table Of Contents
I. Introduction
Preface 4
By Laura Kreutzer, Assistant Managing Editor, Private Equity
After Two Fast-Paced Years, Secondary Market Pauses to Catch Its Breath 6
By Laura Kreutzer
Secondary Market Timeline 16
Fundraising and deal volume, 2000-2012
Stable Pricing Puts Secondary Sellers Back in the Driver’s Seat, for Now 18
By Laura Kreutzer
Secondary Buyers Drive Market’s Next Wave: Fund Recapitalizations 22
By Michael Wursthorn
Secondary Exchanges Innovate in a Post-Facebook World 24
By Russ Garland
Real Estate Secondaries Lay the Foundation for Growth 25
By Hillary Canada
Secondaries Vie to Build Road to Infrastructure Deals 26
By Michael Wursthorn
Maturing Funds, Lack of Exits in Asia May Usher in Secondary Wave 27
By Sonja Cheung
Improving Market Conditions Let Secondary Funds Pump Out the Cash 28
By David Smagalla
II. Sponsored Article
With a Maturing Market, Secondary Firms Provide More Comprehensive Solutions 31
By Benjamin Wilson of PEI Funds
III. Firm Listings
Secondary Market Buyer Listings 32
Secondary Direct Manager Listings 65
Intermediary Firm Listings 71
IV. Appendices
A. Investors That Have Backed Secondary Funds 82
B. Secondary Buyer Rankings by Assets Under Management 85
C. Secondary Buyer Rankings by 2012 Capital Invested 86
V. Indexes
Company Name 87
Contact Name 90
Location 95
Secondary Market Buyer: Interests Sought 99
Secondary Market Buyer & Direct Manager: Geographic Preferences 101
Secondary Market Intermediary: Types of Clients Represented 103
Secondary Market Intermediary: Average Size of Secondary Deals Represented 104
4 | | GUIDE TO THE SECONDARY MARKET
Preface
After three consecutive years of blockbuster deal volume, the private equity secondary market appears to
have hit an inflection point as 2013 unfolds.
The solid performance of public stock markets and a near-record year for distributions in 2012 appear to
have taken some of the pressure off sellers, putting the market back onto a pace that characterized it prior
to 2011.
At the same time, however, two back-to-back years of strong secondary fundraising has helped buoy
pricing for transactions as buyers look to invest the capital they’ve raised. Power at the negotiating table
is shifting back into the hands of sellers, according to sentiments from our annual survey of secondary
buyers.
In this latest edition of our guide to the secondary market, we examine exactly how secondary buyers and
sellers plan to navigate this new terrain, where they expect to see the most active selling and how they
are structuring deals.
This year, we have combined all of the content of our Guide to Secondary Market Buyers and Guide to
Secondary Market Intermediaries into a single user-friendly reference. As in years past, you will still find
all of the detailed profiles of buyers and intermediaries, along with the fundraising, performance and deal
volume statistics that have characterized these guides in prior years.
This year, we also address in detail the market’s growing interest in fund recapitalizations and the future of
secondary market exchanges, along with new features covering secondary investing in Asia and the
challenges or opportunities associated with the nascent market for infrastructure secondary deals.
As always, we hope you find the guide to be a useful reference and welcome your feedback on how we
can improve future editions.
Sincerely,
Laura Kreutzer
Assistant Managing Editor, Private Equity
Dow Jones & Co.
[email protected]
@LauraKreutzer
the new secondary market.
big changes. massive opportunities.
Changed dynamics shape today’s secondary market. With boundaries blurred and capital massed,
transaction options have never been greater—which means increased liquidity for sellers and attractive
returns for buyers. Houlihan Lokey knows the secondary market and will guide you through an ocean
of opportunity to get you where you want to be. powering Liquidity. uncovering opportunity.
Mergers & Acquisitions
cApitAl MArkets
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FinAnciAl restructuring
Jeffrey Hammer paul sanabria
FinAnciAl Advisory services
212.497.4152 | [email protected] 212.497.4141 | [email protected]
Investment banking services provided by HL Capital, Inc.; investment advisory services provided by HL Financial Advisors, Inc.
In the European Economic Area and Hong Kong services provided by HL (Europe) Limited and HL (China) Limited, respectively. Hl.com
6 | | GUIDE TO THE SECONDARY MARKET
After Two Fast-Paced Years, Secondary
Market Pauses to Catch Its Breath
By Laura Kreutzer
Secondary buyers
enjoyed two
What Percentage of Secondary Deals
back-to-
back years of record deal volume in 2011 and 2012. You Do is Due To:
However, as 2013 unfolds, sellers appear to have hit the
pause button, and it remains to be seen exactly how quickly
40% 40%
the market will regain its momentum. 40% 37%
35 33%
Secondary deal volume hit nearly $26 billion in 2012, topping
a previous record $24.78 billion in transactions during 2011, 30
27%
as both financial institutions and fiduciaries such as public
25
pension funds offloaded a steady stream of portfolios.
20%
20
But during the first quarter of 2013, secondary market 16% 15%
15
professionals say the pace of deals has slowed,
particularly when compared with the first quarters of each 10
of the two prior years. Strong stock markets and a robust
5
year for distributions have taken pressure off sellers, many
0
of which now find themselves awash in cash and well
within their target allocations to the asset class. Economic Regulatory Their use as Other (5)
concerns of changes (22) a portfolio
inexperienced management
“In the last five or six years that we’ve been doing this,
investors/distressed (21) tool (24)
it’s probably one of the slowest quarters that we’ve
seen,” said Yann Robard, vice president and head of
Mean (%) Median (%) (Sample Size)
secondaries and co-investments at the Canada Pension
Plan Investment Board. Source: Guide to the Secondary Market, 2013 Edition
Our secondary buyers survey bared this uncertainty out as
firms seemed less optimistic the record levels of deal volume
the industry experienced in the past two years will continue Among those that do not believe 2013 will bring record
this year. The survey reflected responses from 35 secondary volume, two pointed to the volume of large portfolios that
buyers, including many of the industry’s most active firms. have already changed hands in the past two years.
Only 53% of this year’s survey respondents predicted “The main deals have flushed through the market,” one
2013 would be another record year for secondary deal respondent wrote.
volume, down significantly from the 83% of respondents in
last year’s survey that predicted a record year for 2012. Some market participants contend the market is simply
reverting to a deal pace that characterized the industry for
the years up until 2011 and 2012. Typically, the pace of
deals would start slowly in the early part of the year, as
Do You Expect 2013 to Be a Record sellers awaited year-end audited valuations, but would pick
up during the second half.
Year for Secondary Deal Volume?
“The secondary market prior to 2011 was always
seasonal,” said Todd Miller, managing director at
17% Cogent Partners.
Yes
47% 53%
A Year for Smaller Deals?
No
83%
Although smaller secondary deals have long outnumbered
larger ones, some buyers predict that, as 2013 unfolds,
deals involving stakes in individual funds or a small
2013 2012
handful of funds managed by the same firm will dominate
the market.
Source: Guide to the Secondary Market, 2013 Edition
GUIDE TO THE SECONDARY MARKET | | 7
“There has been a clear slowdown at the large end of the
Percentage of Funds Going to
market,” said John Wolak, managing director at Morgan
Stanley Alternative Investment Partners. “For the sub-$50 U.S./Non-U.S. Deals
million transactions, the market has been very strong, and
it’s been quite eclectic in terms of who the sellers are.” Median %
80%
Smaller portfolios continue to account for the lion’s share of 80% 75%
deals in many funds, according to our survey. Survey
respondents invested a median of 75% of their latest funds
in fund stakes with net asset values of less than $15 million. 60
Smaller fund interests are coming on the market as limited
partners consolidate relationships with general partners in 40
their portfolios and use the secondary market more actively 30%
28%
as a portfolio management tool. Firms in our survey say
that portfolio management issues drove an average of 20
about 40% of the deal volume that they do, making them
the most common driver of deal volume.
0
Still, other buyers contend that even though the volume of U.S. Deals Non-U.S. Deals
large portfolio transactions may have slowed in the first
quarter, there are still behind-the-scenes discussions about Current fund Prior fund
large deals, including ones involving large single-fund stakes.
Source: Guide to the Secondary Market, 2013 Edition
8 | | GUIDE TO THE SECONDARY MARKET
“Today, you can still find a single [fund] interest for $200
Percentage of Funds Going to
[million] or $300 million,” said Benoît Verbrugghe, head of
Large/Small Deals U.S. activities at Axa Private Equity, which invested some
$2.5 billion into secondary deals in 2012.
Median %
Mr. Verbrugghe added that his firm closed a “significant-
80%
75% 75%
sized” transaction in late December, although he declined
to disclose details of the deal.
60
Others share Mr. Verbrugghe’s view, contending that
50% 50%
although the pace of selling may be slower than this time
last year, there is still a large volume of assets in investor
40
portfolios waiting to hit the market.
“Our pipeline suggests that $25 billion to $30 billion [of
20
transaction volume] is possible this year, based on what
we’re working on,” said Wilson Warren, a partner with
0 Lexington Partners.
Stakes with NAVs Stakes with NAVs
larger than $15M less than $15M
Financial Institutions Ease Off the Gas
Current fund Prior fund Banks and insurance companies continue to drive
secondary deal volume, although at a slower pace than at
Source: Guide to the Secondary Market, 2013 Edition
this time in prior years.
Over the past three years, banks, insurance companies and
What Percentage of Assets You
other financial institutions have provided a steady pipeline of
Purchased on the Secondary Market
deals. European banks, in particular, have shed portfolios as
Fell Outside Traditional Definitions of they braced for regulations limiting the amount of riskier
Private Equity or Venture Capital?* assets they can hold on their balance sheets.
Regulation continues to motivate sellers, with participants
4% None in this year’s survey estimating it drives an average of about
8% 1% to 10% 37% of deals they do, a close second to portfolio
4%
management issues as a motivating factor.
11% to 20%
21% to 30% However, toward the end of 2012, the volume of deal flow
23% 62%
coming from banks began to slow, according to some
31% to 40%
secondary buyers, as economic conditions in some European
41% to 50%
countries stabilized and their financial conditions improved.
More than 50%
“The European banks are reluctant to take hits to their
Numbers do not add up to 100% due to rounding. *Nontraditional sectors include infrastructure funds, assets,” said Mr. Wolak of Morgan Stanley AIP. “Overall,
oil and gas funds, hedge funds, real estate funds and private credit portfolios.
the market is trading at a 10% discount, and European
Source: Guide to the Secondary Market, 2013 Edition
Banks Sell Down Captives/Anchor Stakes (Select Deals 2012-2013)
Financial Institution Seller Fund Name Stake (M) Buyers (if known)
Bank of America Merrill Lynch Ridgemont Equity Secondary at least $460 AlpInvest Partners, Goldman Sachs Group Inc.,
Fund I LP Landmark Partners
Credit Suisse Group Global Infrastructure $590 (NAV and uncalled Lexington Partners
Partners LP commitments as of 9/30)
Credit Suisse Group Credit Suisse Private Equity N/A HarbourVest Partners, Asia Growth Capital Advisors
Asia Partners LP
HSBC Holdings PLC Headland Capital Partners at least $300 N/A
(various funds)
J.P. Morgan Chase & Co. CCMP Capital Partners II LP approx. $400 A handful of prospective buyers that includes Lexington
Partners and Canada Pension Plan Investment Board
KBC Group NV KBC Private Equity N/A LGT Capital Partners
Sources: Dow Jones & Co., Private Equity News, Bloomberg