Falling listed fund valuations hint at secondaries boom in 2012

Listed private equity vehicles have been bit by the renewed economic turmoil spreading from the Eurozone, with sharess trading well below NAV. Pantheon, which runs the listed PIP vehicle, says its shares currently sell at around a 40% discount and this a trend being mirrored across the industry.

Andrew Lebus, partner at Pantheon, says: "Investors still think of private equity as a risky form of investment. Given the tendency of investors to assume a uniform level of risk, there is obviously good scope for investors to pick up exposure to trusts at a high discount as risk is lower in a highly diversified fund that has a good long term track record."

Aside from economic turbulence, new regulations could be pushing institutional investors to offload their private equity holdings, resulting in lower prices. Movements in the pricing of listed assets could provide some insight into the future of listed funds as well, and how they might fare on the secondatries market. As Banks and Insurance funds seek to firesale their private equity assets, secondary players are set to benefit from greater choice.

Secondaries activity certainly seems to be on the up, only this year Axa Partners acquired a €620m portfolio of LP interests from HSH Nordbank. This was quickly followed by a $1.7bn portfolio from Citgroup as well as $714m of assets from Barclays. This follows on from the record $20bn of secondary transactions seen last year, and secondaries investors have filled their funds ready for new investments. In July, Lexington partners closed its latest secondaries fund on $7bn and French secondary specialist Committed Advisors closed its maiden fund at €257m.

Elly Livingstone from Pantheon reckons that "About €100bn of private equity assets are still sitting on European banks balance sheets". These assets might come on the market in the near future, further increasing the choice available to secondary funds.

A glut of portfolios on the secondaries market will likely lead to low pricing and allow buyers to be more discerning in their decisions. Additionally, moves in Europe to regulate pension funds in a similar way as solvency II impacts insurance companies might put further pressure on the market. If and how long the secondaries market will benefit from these opportunities remains to be seen. However, it looks like many portfolios will change hands in the coming year.

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