AXA pays $1.7bn for Citi’s 207 LP stakes

"Secondaries had a record 2010 and will continue to grow in the next couple of years," Hanspeter Bader, managing director at Unigestion says.

A number of factors came together to make this happen: firstly, pricing reached a level whereby people were willing to transact. Secondly, LPs were – and are – rectifying their portfolios, which is fancy speak for trying to shed some unsavoury investments from 2006 and 2007. For example Pantheon is culling around a third of it relationships to settle on around 30, while Unigestion counts around the same number of "active" fund managers – down from 70 at the peak. CalPERS is in the process of offloading $800m of private equity, mostly losing mega-funds in favour of mid-market managers. This rebalancing act is underway, though has a way to go and will continue to drive activity this year.

But legislation is driving some of the mega sell-offs, and they are the ones that really boost figures. Basel III is forcing banks to increase their reserves while the Dodd Frank Act is seeing banks spin off their private equity businesses. Roughly $40bn is expected to come up for sale as banks and pension funds are forced to comply with the legislation.

This latest $1.7bn purchase by AXA is a case of legislation, not supply and demand, driving secondaries activity. It has taken over 207 LP positions previously held by Citi's proprietary capital deals; it does not include those done by Citi Capital Advisors. These include interests in Carlyle, Blackstone and KKR, among others. Lapping up sizeable assets off regulation-restrained institutions is old hat for AXA; in April 2010 it purchased $1.9bn of private equity positions from Bank of America. This single deal comprised nearly a tenth of last year's volume.

The continued interest in secondaries is likely to see $22bn raised for dedicated funds this year, double 2010's figure, according to research from fund adviser Triago. The day before the AXA deal was announced, Unigestion announced a final close on €190m for its follow-on secondaries fund.

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