𝙇𝙤𝙣𝙙𝙤𝙣 𝙘𝙖𝙡𝙡𝙞𝙣𝙜...
Myself and Freddy Drummond-Brady (our very own ex-guardsman:💂♀️) represented Lockton at yesterday’s #SecondariesSummit24 in London. It was a privilege to have such a fantastic conference in our own backyard and to meet decision makers and advisers across the European secondaries market. Some of our takeaways:
1. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗯𝘂𝗼𝘆𝗮𝗻𝗰𝘆 📈
Sentiment in the sector remains very positive. Despite continued concerns around under capitalisation, secondaries deal volume is expected to reach $150bn this year. With close to $3trn of unrealised value in PE held assets, secondaries transactions are quickly being seen as the ‘4th’ exit track after traditional M&A, IPOs and refinancings.
2. 𝗥𝗲𝗽𝘂𝘁𝗮𝘁𝗶𝗼𝗻 𝗺𝗮𝘁𝘁𝗲𝗿𝘀🗣️
The established secondaries market in Europe is small compared to North America. Having been undercapitalized for a number of years, GPs know that there are a limited number of lead investors who truly understand the secondaries market and that have the nimbleness and ability to deploy the amount of capital required in compressed timeframes. Likewise, despite the number of new entrants from an advisory standpoint, those law firms, placement agents and W&I markets who have the knowledge to deliver value on these transactions continues to be limited.
3. 𝗧𝗵𝗲 𝗻𝗲𝘄 𝗻𝗼𝗿𝗺𝗮𝗹?🚀
What would a low interest rate, buoyant M&A and IPO market mean for the secondaries world? Panellists agreed that secondaries are an important liquidity release mechanism which are here to stay. They offer a more attractive DPI profile than traditional exit routes, allow for prize assets to be retained and grown by GPs who have a track record in driving performance and allow new investors greater comfort around future performance versus typical M&A.
4. 𝗖𝗿𝗲𝗱𝗶𝘁 𝘀𝗲𝗰𝗼𝗻𝗱𝗮𝗿𝗶𝗲𝘀 💸
With close to $2trn of private credit outstanding, private credit secondaries are proving a crucial tool in a nascent market to unlock liquidity. Lockton have placed a number of W&I policies for credit secondaries and expect deal volume to increase significantly as the market matures.
5. 𝗜𝗻𝗰𝗿𝗲𝗮𝘀𝗲𝗱 𝗰𝗼𝗺𝗽𝗲𝘁𝗶𝘁𝗶𝗼𝗻 🙋🙋♂️🙋♀️
With North American pension funds already weighing into the secondaries market across the pond (think CalPERS, Connecticut Retirement Plans and Trust Funds, CPPIB) could we see European pension funds (e.g. the UK’s new National Wealth Fund) and sovereign funds starting to deploy capital into the European secondaries market?
6. 𝗠𝗶𝗻𝗱 𝘁𝗵𝗲 𝗴𝗮𝗽 ▶️💶◀️
There are signs that the bid-ask-spread is eventually narrowing though LPACs are still waiving through valuations with significant NAV discounts.
7. 𝗪&𝗜✨
Recognition of the value of W&I in facilitating secondaries transactions is growing in Europe. Having helped pioneer secondaries W&I insurance, Lockton have placed over 120 secondaries W&I policies. Please reach out to discuss how we may assist.
