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UNQUOTE
  • Secondaries

LP stakes trade on wider discounts amid liquidity crunch – Palico

  • Ero Partsakoulaki
  • 18 November 2022
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The discounts priced into LP secondary market trades in Q3 have been wider compared with the previous quarter, with the average price-to-NAV of a discounted deal being 90%, according to a report from online secondaries platform Palico.

The online marketplace published the results of a survey of the Q3 prices paid on the secondary market for 69 private funds with strategies ranging from buyout to credit across the world. It found that buyers are pushing harder for discounts in recent months.

More than half (60%) of the funds that participated in the survey were prime stage vehicles seeing average price-to-NAV pricing of 100%. The tail-end funds surveyed, accounting for 33% of the total, were the ones seeing the bigger discounts, trading at an average of 88%. Five early-stage vehicles − three years old or less− were also surveyed, trading at 105% on average.

More than half (54%) of deals were discounted in Q3, reversing a trend seen in Q2, when the balance of secondaries transactions involved premium-priced deals, according to the report.

ICG Strategic Equity Fund III(2018-vintage) and Apax IX (2016)  were among the funds trading above par in Q3, at 110% and 107% respectively.

Adams Street 2012 Global Fund traded at 92%, while BC European Capital IX (2011)  traded at 90%.

As LPs have been managing liquidity constraints, GPs have been reluctant to mark down their portfolio NAV, according to Palico. The average price-to-NAV of private equity fund interests that traded in the first quarter was 96%, down from 99% three months prior, it wrote. LPs have also seen their PE fund distributions fall amid a tougher exit environment, it added.

Dealflow on the up
Coller Capital is among the secondaries GPs expecting that liquidity constraints will drive LPs to turn to the secondaries market, Unquote reported.

Amid this liquidity drought, and in response to the fast-paced and crowded primary fundraising market, secondaries market players are expecting to see increased opportunities in LP stakes alongside a cooling off of GP-led deals in 2023, Unquote reported in September.

This will be accompanied by an uptick in secondaries investors launching new strategies, looking for ways to differentiate their offering as the market matures, as reported. Several market players are expected to develop funds investing solely in GP-led deals. Players already active in this market include ICG and Pantheon.

Although the European private equity market has seen less capital raised in 2022 to date than in 2021, secondaries vehicles have continued to make up a consistent portion of this total. According to Unquote Data, secondaries GPs operating in Europe raised EUR 30.4bn across 16 vehicles in 2021, making up 13% of capital raised that year, versus a further EUR 16.8bn raised to date across 11 vehicles in 2022, accounting for 11% of the market by aggregate value.

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  • Apax Partners
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  • Secondaries

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