60 seconds - Henri Isnard - ARCIS

How has the current financial climate affected your end of the market?

For us, the financial difficulties which have arisen mean that there are potentially a host of new opportunities for the secondary market both in funds and direct portfolio acquisitions.

The downturn which has appeared in private equity will have a number of investors looking to sell underperforming positions in certain vintages in order to get into new ones. Some will also seek to sell off non-essential assets. Banks have been particularly keen at reducing some of their over exposure.

There are also a growing number of vendors who could be labelled as distressed and needing liquidity. Since exits and liquidity have been particularly hard to achieve of late, we provide an increasingly viable option for firms wishing to divest.

How has the secondary market reacted to the situation?

The effect in our market will be more remarkable in 2009 than it is now. We're looking to tread carefully now to take on the best possible positions available.

Currently the flow of closed deals is not up hugely compared with previous years. However we expect an increase in deals completed next year following end of year 2008 auditing and valuations.

A strong degree of caution must be exercised because with more opportunities comes more risk. With the market changing constantly and the high leverage and inflated prices at which some of the investments were made, the pricing of deals has to be regularly revised.

We now have to be particularly careful whilst doing due diligence and must seek to make a profit on entry with the discount compared to the real value as well as one on future exits. In the current climate we must make sure discounts correctly reflect the risk.

Finally, what is the future for the secondaries market?

Investments made shortly before the credit crunch hit may only reach the secondary market years down the line. There is always a lag between primary and secondary markets however we expect to see an increase in deals over the next couple of years, somewhat of a mini boom but hopefully on a small and responsible scale. There are not a lot of actors in the secondaries market it is only a small segment worth round EUR30bn. It has roughly tripled in size in the last five years and with investors seeking to diversify their portfolio we may eventually see a few new faces.

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