EUROPE - Still scope for secondaries?

FR
16 December 2009

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Could the vast amounts of secondary funds raised recently and the limited deal completion lead to a capital overhang in the coming years? Francois Rowell asks Sergio Jovele of Partners Group, which yesterday announced the closing of its latest secondaries-focused vehicle on EUR 2.5bn.

A lot of attention has been paid to secondaries during 2009, as it was expected that strong deal flow of discounted assets would present itself as vendors sought to consolidate their allocations. Poor market visibility has hindered these expectations and limited secondary investment.

Indeed, while the discounts of certain assets and commitments have certainly been interesting - with some offered at over 100% - the actual value of the assets have been harder to assess, leaving secondary investors fearing 'catching falling knives'.

Sergio Jovele of Partners Group, which yesterday closed its latest fund above target on EUR 2.5bn, suggests that this is now changing, as economic recovery increases confidence in trading forecasts.

Furthermore, primary deals have been scarce over the previous year and subsequently investors haven't faced drastic draw downs. As visibility is restored and debt slowly returns, primary deals are expected to increase, and this could put a number of investors with limited liquidity under pressure and could see more assets put on the block.

For investors there is potentially another problem: increased competition, from both traditional LPs and GPs that have raised money in expectation of a swathe of deals.

Partners Group hopes to have the edge on competing funds due to its proprietary approach. The firm also covers a large geographic area with ten offices globally and 350 staff, which is already generating secondaries deal flow of over EUR 70bn this year.

The Partners Group Secondary Fund 2008 has already made at least two investments, acquiring a portfolio of assets from a bank at a 70% discount in early 2009, which the firm says is set for an IRR of 20%, and more recently a number of assets from a distressed investor seeking liquidity purchased at a 50% discount, which is also expected to return 20%.

The fund's investors include corporate and public pension plans, insurance companies and family offices. Based in Zug, Switzerland, Partners Group has over EUR 15.8bn under management.