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The 2009 Preqin Private Equity Secondaries Review - Sample Pages
The 2009 Preqin Private Equity
Secondaries Review
- Sample Pages
© 2009 Preqin Ltd
1
The 2009 Preqin Private Equity Secondaries Review - Sample Pages
Contents
1.
Executive Summary
7
2.
Methodology
13
3.
Evolution of the Secondary Market
17
-
4.
Role of the GP in the Secondary Market – Survey Results
-
5.
-
7.
-
8.
Profiles for LP Secondary Market Buyers
175
15.
Analysis of Investors in Secondaries Funds
197
Listings of Investors in Secondaries Funds
203
17.
2008 Secondary Market Transaction Table
247
18.
Analysis of Potential Secondary Market Sellers
253
-
39
45
51
9.
Secondary Fund of Fund Preferences
59
10.
Profiles for Secondary Fund of Funds Managers and Fund of Funds
Managers
65
11.
Listings of Secondaries Funds Currently Raising
143
12.
Listings of Secondaries Funds Closed
149
Reasons for Selling Fund Stakes, Case Studies: CalPERS and Ohio Bureau
of Workers’ Compensation, LP Seller Preferences, Approaching a Secondary
Sale, Future Expectations
19.
Profiles for LP Secondary Market Sellers to Watch
259
20.
Analysis of Secondary Market Intermediaries
271
-
Fund of Funds Managers Actively Investing in Secondaries, Portfolio
Allocation to Secondaries, Fund of Funds with the Largest Allocations to
Secondaries, Outlook
© 2009 Preqin Ltd
Reasons to Invest in Secondaries Funds, Breakdown of Investors in
Secondaries Funds, Investor Appetite for Secondaries Funds in 2009
16.
Geographic Breakdown, Manager Experience, Amount Raised by Managers
Historically, Average Size of Secondaries Funds, Fundraising for Secondaries
Funds, Secondary Fund of Funds Manager Investment Preferences, Outlook
Analysis of Fund of Funds Managers with Secondary Allocations
-
14.
33
Valuations on the Secondary Market and Their Correlation to Listed Private
Equity Funds, Discounts to NAV
Analysis of Secondary Fund of Funds Managers
-
167
Motivations of LPs Looking to Buy, LP Buyers by Type, LP Buyer Preferences,
Investors and Secondary Market Purchases in the Year Ahead
25
DPI, RVPI and TVPI, Median Multiple and Weighted Multiple, Top, Median and
Bottom IRR Quartiles, IRR Dispersion, Secondaries Cash Flow Analysis
Pricing of Secondary Transactions
Institutional Investor Appetite for Secondary Market Purchases
-
GP Views on Secondary Transactions and Potential Buyers, Right to Veto a
Secondary Sale, Stapled Secondaries, Cash Call-up Concerns of LPs
Performance of Secondary Fund of Funds
-
6.
Structure and Complexity, Stapled Secondaries, Approaching a Secondary
Sale, Intermediaries, Challenges Facing the Industry, LPs in the Secondary
Market, Bid-Ask Spreads
13.
Usage of Intermediaries, Intermediaries Industry, Intermediaries and Their
Clients, Transaction Sizes, Intermediaries’ Expectations of Secondary Market
Activity in 2009
21.
Profiles for Intermediaries in the Secondary Market
277
21.
Index
299
22.
-
Secondary Fund of Funds Managers
-
LP Secondary Market Buyers
-
Investors in Secondaries Funds
-
LP Secondary Market Sellers
-
Intermediaries in the Secondary Market
Other Preqin Publications
-
315
Other Preqin Products
2
1. Executive Summary - Sample Pages
Executive Summary
Fig. A: Likelihood of Investors Selling Fund Interests on the Secondary Market
in the Next 24 Months
The events of the second half of 2008 catapulted the
secondaries industry to a new position of prominence
within the private equity industry. The steep decline in the
value of listed equities left many institutional investors
suffering from the well-documented denominator effect,
with fears over meeting capital calls also becoming a
worry for many. In addition, the drastic change in the
global financial landscape left many concerned over the
make-up of their portfolios, with investments in mega
buyout funds appearing considerably less attractive in
the post-Lehman landscape of late 2008/early 2009.
The result has been a significant increase in interest
towards the secondary market. Investors forced to
restructure their portfolios have created a large swing
towards the supply side of the secondary market, and
as a result, fund interests have been priced significantly
below their most recent net asset values. There have
even been stories emerging regarding investors willing
to write off the entire value of existing investments,
selling funds at a 100% discount to NAV in order to
avoid further capital call-ups.
How Widespread are Secondary Sales?
According to the results of a Preqin survey of private
equity investors carried out during December 2008 January 2009, a total of 9% of institutions with private
equity fund holdings are considering selling fund
interests on the secondary market within the next two
years, with an additional 1% classing themselves as
extremely likely to be making a sale. Although this may
© 2009 Preqin Ltd
not appear to be an especially large proportion in light
of the heightened press speculation and coverage of
the sector, with private equity global assets under
management currently standing at $2.5 trillion, it does
still indicate that the number and/or value of funds
changing hands will be significant in the coming year.
Of the investors that stated they would be considering
making sales on the secondary market, gaining liquidity
was the most popular reason given as to why they would
be selling, with the denominator effect, rebalancing
portfolios and wishing to exit poorly performing funds
amongst the other responses. With 63% of those polled
either at or above their private equity allocations, liquidity
and the denominator effect are major contributing factors
for investors recently entering the market.
It is interesting to note that a number of investors polled
had used the secondary market in the past, and would
do so again in the future, but felt that the influx of sellers
had pushed prices down to an unacceptable level. As
a result they would not be entering the market until the
supply and demand levels returned to a more balanced
level.
Such responses highlight the fact that the secondary
market has evolved in recent years, with some of the
stigma that was attached to it in the earlier days of the
industry having lessened considerably. The secondary
market has proved to be a useful tool for investors
wishing to reduce their administrative burden, those
wishing to rebalance their portfolio at a strategic level,
and for those seeking to exit tail-end private equity
3
1. Executive Summary - Sample Pages
funds. Ironically, those investors that have been using
the market for these more sophisticated portfolio
management reasons have been pushed out of the
market somewhat, as the influx of sellers has driven
prices down to too low a level for secondary sales to be
effective in this way.
As previously mentioned, stories of fund interests
changing hands at values significantly below NAVs
have been widespread, and all the signs certainly
point towards a buyer’s market. However, despite the
increasing spread between NAVs and asking prices,
the actual number of deals going through has not yet
increased as dramatically as one might expect given the
circumstances. It is likely that only those investors most
desperate to liquidate investments would be content
to exit at such a low price. There are certainly many
potential sellers who are in a position to wait until market
conditions become more favourable, and it is likely that
we will see more sellers entering the market over the
course of 2009 and beyond, increasing the proportion
of investors considering a sale beyond the current 10%
that our poll indicates.
In the 2009 Preqin Private Equity Secondaries Review,
we feature the profiles of over 20 investors currently
looking to sell private equity fund interests.
Why are Asking Prices so Low in Comparison with
NAVs?
Due to the delay in private equity performance reporting,
most fund NAVs are still outdated, and the gulf between
them and current asking prices are due to the fact that
the market believes future valuations will be significantly
© 2009 Preqin Ltd
Net IRR (%) Since Inception
A Buyer’s Market?
Fig. B: Secondary Fund of Funds - Top, Median and Bottom IRR Quartiles
Vintage Year
reduced. With new FASB 157 legislation being
introduced, and with new performance data becoming
available, it is certain that official fund valuations will
be dropping in the future as underlying investment
portfolios are hit, exit conditions are poor, and volatility
in the global economy remains.
This may bring confidence to the market for both buyers
and sellers, and will serve to reduce the risk involved with
making a secondary purchase – thereby increasing the
number of transactions. It is also interesting to note that
these falling valuations will alleviate the denominator effect
for many investors, as reducing fund NAVs will see private
equity commitments fall as a proportion of the overall
portfolio. In some cases this may even reduce the need
for investors to sell interests on the secondary market.
Who are the Buyers?
Specialist secondary fund of funds managers maintain
a significant presence in the market. Since 2007,
secondary fund of funds managers have raised an
aggregate $19.4 billion for making purchases on the
secondary market, and they are seeking a further $28.3
billion in new commitments for funds currently on the
road. It is also important to note that standard fund of
funds managers will also include a small allocation
towards secondary purchases, and it is likely that this
will become an increasingly important part of fund of
funds’ strategies going forwards.
The increase in the number of fund interests being
sold, and the potentially attractive prices that they
4
1. Executive Summary - Sample Pages
can be bought at, has also led to a significant rise in
interest for secondary purchases amongst institutional
investors previously only focusing on primary funds.
In our survey of investors, a total of 20% of investors
indicated that they would consider purchasing interests
on the secondary market, and a further 23% stated that
they would be very likely to do so in 2009.
Past performance for secondary fund of funds has been
extremely high, and as Fig. B shows, median IRRs have
peaked at over 30% for vintage 2002 and 2003 vehicles.
In addition, for more mature funds there is relatively little
spread between the top and bottom quartile performance,
and at no time has even the bottom quartile returns for
secondary fund of funds dipped below zero.
With the conditions for buying looking good, and with
strong and reliable past performance, the level of
interest from investors in both making secondary fund of
funds investments and in making secondary purchases
directly is likely to remain strong in 2009 and beyond.
In the 2009 Preqin Private Equity Secondaries Review
we provide profiles for all of these different groups of
buyers, with profiles showing preferences by fund type,
vintage and regional focus. We also include profiles and
analysis for investors in secondaries funds.
How do GPs Feel Towards the Secondary Market?
Our poll of GPs reveals that fund managers are actually
relatively positive towards the secondary market, and
are offering little in the way of resistance to secondary
market transactions. The vast majority (94%) of GPs
have not exercised their right to veto a secondary
market sale, while GPs with a negative attitude towards
the secondary market are in the minority (25%). GPs
© 2009 Preqin Ltd
are showing an active interest in secondary market
transactions. A significant 79% of GPs that we polled
would prefer moderate to high involvement in any
transaction process.
A total of 74% of those polled indicated that they were
either interested in, or would consider, using secondary
sales in order to find LPs that participate in stapled
secondary transactions. In this way, the GP can gain
guaranteed future funding by approving the sale of an
LP interest on the condition that the buyer provides a
subsequent primary commitment to a new fund. This is
especially of interest to smaller fund managers, and can
provide an important boost to future fundraising efforts,
particularly in such challenging times.
Looking Forwards
The downturn in the global economy has led to a huge
growth in interest and activity in the private equity
secondary market, with an increase in both sellers and
buyers engaging in secondaries activity. Over the course
of 2009 we predict that the number of secondary sales
will increase, with both buyer and seller confidence
being buoyed by new fund valuations coming into play.
The rise in prominence of the market will also have
longer lasting effects. Increasing numbers of investors
are seeing the benefits that the secondary market offers,
and we would expect more institutional investors to get
involved on the buying side in the future. Those investors
that utilise secondaries sales for more sophisticated
portfolio management reasons will return to the market
over the course of 2009 as pricing becomes more
reasonable, and more investors will come to see the
advantages that can be gained from using the market
in this way.
We will also see a continuation in the growth of firms
that specialise in the secondary market. 47% of
intermediaries have entered the market since 2003 and
we are seeing increasing numbers of placement agents
considering launching secondaries arms in 2009 and
beyond. More secondary fund of funds will be raised, and
new firms will be launched in order to take advantage of
the increase in the number of opportunities available.
The secondary market looks set to continue its growth
from a niche sector into a fundamental and vital part
of the private equity industry as it continues to gain
acceptance, and as more investors seek to take
advantage of the benefits that secondary transactions
can have on their portfolios.
The 2009 Preqin Private Equity Secondaries
Review
We are confident that this year’s publication provides
the most comprehensive overview of the secondaries
industry ever created. We have included analysis
on every aspect of the market, including an historic
overview, information on all different classes of buyers,
sellers and intermediaries, analysis of secondaries
fundraising, plus a detailed performance analysis. We
also include listings for all funds closed and raising,
plus information on recent secondary transactions. In
addition, the Review has detailed profiles for secondary
fund of funds managers, fund of funds managers, LP
Buyers, LP Sellers and intermediaries/placement
agents.
We hope that the Review serves to further understanding
of this important industry, and welcome any feedback
and comments that you may have.
5
3. Evolution of the Secondary Market - Sample Pages
underlying portfolio companies of a fund are held by the
GP, which could be reluctant to share this information.
Through extensive due diligence, alternative assets
advisors can go some way to improving the quality
of information provided to would-be buyers of fund
interests.
Fig. 3.3: How Often Do Investors’ Alternative Assets Advisors Recommend Secondary Sales or
Purchases?
In order to assess if the level of available information
had affected investors’ attitudes towards the secondary
market, Preqin asked investors how well informed they
felt about the secondary market and also how often their
alternative assets advisors recommended a secondary
sale or purchase.
How Often are Investors Being Approached with
Investment Opportunities?
A Canadian investment company revealed that it
receives up to two secondary market proposals from its
advisor each month and a US endowment plan explained
that while it has not been advised to participate on the
secondary market directly, it has been recommended
to invest in secondary fund of funds in order to gain
exposure to the secondary market. Interestingly, to take
advantage of favourable pricing, the alternative assets
advisor to a prominent UK private sector pension fund
has recommended that it buys fund interests on the
secondary market and refrains from selling during the
ongoing financial turmoil.
How Well Informed do Investors Feel?
Fig. 3.2 shows that while 77% of respondents feel
either adequately or well informed about the secondary
market, a substantial 23% consider themselves illinformed. Coupled with the 34% of investors that have
never received a secondary market recommendation
from their alternative assets advisors (Fig. 3.3), it is
evident that the secondary market has the potential to
expand and could benefit from the enhanced availability
and delivery of information to investors.
© 2009 Preqin Ltd
All Talk, No Action?
Despite a wealth of interest in the secondary market,
fewer deals than expected have actually been completed.
Many of the buyers who had agreed to purchase fund
interests have activated material adverse change
clauses in their contracts and are therefore free to cancel
transactions. Other potential buyers of fund interests
have held off from making bids, preferring to wait until
up-to-date valuations are published for year-end 2008.
However, the now-active FASB 157 regulations should
ensure secondary market offerings are more accurately
priced and effectively reduce bid-ask spreads. With
this, it is expected that there will be an increase in the
number of completed secondary market transactions
throughout 2009.
One particular challenge facing the private equity
secondary market is the legislation in certain regions
which states that no more than 2% of a fund’s LP
interests can be sold on the secondary market. Failure
to comply with this rule can potentially result in the
fund losing its private status and could subject it to
higher taxes. One way around this issue has been the
use of synthetic transfers, which involve a third party
agreeing to the payment of unfunded commitments and
the subsequent reception of distributions, without the
transfer of ownership of the LP interest.
Another potential limitation to secondary deals is an
issue concerning clawbacks. If GP carry fees are paid on
a distribution basis, clawback provisions can be brought
into effect if the fund does badly overall. Once the fund
stake is transferred, the rightful recipient of any future
clawback becomes negotiable. In most cases to date, it
has been decided that clawbacks should go to the
6
4. Role of the GP in the Secondary Market - Survey - Sample Pages
veto right in order to compel the LP in question to sell its
interest back to the manager, rather than a third party.
Fig. 4.5: Proportion of GPs That Have Exercised Right to Veto a Secondary Sale
Interest in Stapled Secondary Transactions
With most GPs wanting to guarantee at a least a
moderate level of involvement in the reassigning
process, as revealed in Fig. 4.3, stapled secondary
transactions are proving increasingly commonplace.
This practice occurs when the GP grants approval of
the sale of an LP interest in an established fund on the
condition that the buyer provides a subsequent primary
commitment to a new fund formed by the GP. The major
influencing factor for seeking out prospective LPs active
in stapled secondary transactions is that they offer an
ongoing money supply, guaranteeing commitments for
future fundraising. Fig. 4.6 shows that 74% of the GPs
surveyed either are interested in, or would consider,
finding LPs that participate in stapled secondary
transactions. 26% of firms did not indicate any interest
in stapled secondary opportunities. The majority of
these firms are at the larger end of the private equity
spectrum, negating the requirement to negotiate stapled
secondary deals with individual purchasers because
they boast countless LPs from which they can secure
funds. Intriguingly, despite the evidence of high interest
in LPs that participate in stapled secondary transactions,
of the firms surveyed, only 11% had participated such in
transactions in the past.
Fig. 4.6: Proportion of GPs Interested in Finding LPs that Participate in
Stapled Secondary Transactions
Cash Call-up Concerns
As a consequence of the current squeeze on liquidity
affecting the market, GPs were asked whether any of
their LPs had expressed concerns at being able to meet
their call-up obligations in the past six months (Fig. 4.7).
With LPs’ willingness to invest across all asset classes
© 2009 Preqin Ltd
7
7. Analysis of Secondary Fund of Funds Managers - Sample Pages
Analysis of
Secondary Fund of
Funds Managers
Overview
The secondary fund of funds market has historically been
dominated by a small number of specialised players
raising very large funds. In recent years, however,
we have seen an influx of new dedicated secondary
fund of funds managers and also a rise in the number
of traditional fund of funds managers raising vehicles
focusing exclusively on the secondary market. In total,
Preqin identifies 58 secondary fund of funds managers
and private equity fund of funds managers currently
managing or raising dedicated secondary fund of funds.
In this section of the Review, we will be examining the
make-up of this market and identifying trends applicable
to secondary fund of funds managers.
Geographic Breakdown
North American fund managers dominate the secondary
market, with 56% located in this region, as shown in Fig.
7.1. Europe accounts for 34% of the secondary fund of
funds managers active in the market. The remaining
10% of managers are located in Asia and Rest of World.
Unsurprisingly, all of the active managers located in
Asia and Rest of World are fairly new to the secondary
market, managing either their first or second secondary
fund of funds. As the demand from investors worldwide
for exposure to the secondary market grows, we expect
to see an increase in the number of GPs actively
managing secondary fund of funds in every region.
Manager Experience
The private equity secondary market is increasing in
size and we expect its share of the overall private equity
Fig. 7.1: Split of Secondary Fund of Funds Managers by Location
© 2009 Preqin Ltd
market to increase over the next few years. Fig. 7.2 shows
that 46% of managers are raising or managing their first
dedicated secondary fund of funds, which is evidence
of the ongoing expansion of the secondary market.
Managers that are still fairly new to the market, having
raised 2-3 funds historically, account for 27% of the total
number of firms active in the secondary market. There
are also a significant number of experienced secondary
fund of funds managers in the market; 15% of firms
have raised six or more secondary fund of funds. The
manager with the most vehicles is US-based Landmark
Partners, which manages a total of 13 secondary fund
of funds. The market is therefore dominated by a small
number of GPs managing numerous, often large, funds,
though an abundance of smaller managers are also
present in the market.
Amount Raised by Managers Historically
As Fig. 7.3 shows, 7% of secondary fund of funds
managers have raised over $5 billion in total across their
vehicles. Lexington Partners has raised the most capital
historically, having secured commitments totalling $8.9
Fig. 7.2: Split of Secondary Fund of Funds Managers by Firm Experience
8
10. Profiles for Secondary FoF Managers - Sample Pages
ESD Fund III
ESD Fund II
ESD Fund I
2004
1999
1994
Closed
Closed
Liquidated
175 EUR
92 EUR
60 EUR
100%
100%
100%
100.0
100.0
100.0
122.0
106.0
165.0
70.0
10.0
0.0
1.92
1.16
1.65
31-Dec-08
31-Dec-08
31-Dec-08
ATP Private Equity Partners
Tel: +45 3319 3070
www.atp-pep.com
Sjaeleboderne 2, 1st Floor, Copenhagen, 1122, Denmark
Founded in 2001, ATP Private Equity Partners (ATP PEP) is a fund of funds manager and is one of
Europe’s largest investors in private equity funds. It is sponsored by ATP - the Danish Labour Market
Supplementary Pension Scheme, and SP - the Special Pension Savings Scheme. ATP PEP invests in
buyout, venture and distressed-related funds, secondary interests and co-investments in Europe and
North America. It also invests in Asia and Rest of World on an opportunistic basis.
Fax: +45 3319 3071
puk@atp-pep.com
Buying Preferences:
Buyout
•
Venture
•
Contacts
Søren Brøndum
Andersen
Torben Vangstrup
Susanne Forsingdal
Klaus Ruhne
Distressed
•
Director
sba@atp-pep.com
Partner
Partner
Partner
tva@atp-pep.com
sus@atp-pep.com
klr@atp-pep.com
Other
Mezzanine
Opportunistic
•
Asia & ROW
North America
Europe
•
•
ATP Private Equity Partners is actively buying fund interests and taking part in deals on the secondary market. All of ATP’s fund of funds vehicles have a secondaries component and its latest fund of funds,
ATP Private Equity Partners III, will utilise 5-10% of its capital for secondary purchases. It will primarily look to buy interests in buyout funds but may consider other types of funds as well. ATP's motivation for
being active in the secondary market is to take advantage of favourable fund pricing as well as to purchase interests in previously inaccessible top-tier funds at a discounted price. ATP will consider purchasing
interests in less mature funds if they are top-tier vehicles that ATP has not previously had access to. For more mature funds, ATP will focus more on the deal itself and whether or not it can buy at a good price.
In terms of the regional focus of target funds, the fund of funds manager will primarily look for European and North American vehicles.
Funds Managed
% Allocation to
Rem. Value
Fund
Vintage
Status
Size (mn)
Called (%) Distributed (%)
Multiple (X) Net IRR (%)
Date Reported
Secondaries
(%)
ATP Private Equity Partners III
2007
Closed
1,500 EUR
5 - 10%
5.7
0.2
99.9
1.00
n/m
30-Sep-08
ATP Private Equity Partners II
2005
Closed
1,500 EUR
5 - 10%
52.1
6.8
96.1
1.03
5.1
30-Sep-08
ATP Private Equity Partners I
2003
Closed
1,000 EUR
0 - 5%
76.1
52.7
74.5
1.27
18.4
30-Sep-08
Auda International
Tel: +1 212 863 2300
www.auda.net
888 7th Avenue, 41st Floor, New York, NY, 10106, US
Fax: +1 212 593 2974
Auda International is an international investment advisor. It offers a wide range of investment
opportunities in private equity and hedge funds. Auda's primary objective is to create investment Evita Shneberg
Senior Associate
programs for investors who seek to incorporate alternative asset investments into their portfolios. Auda
offers its services to institutional investors and high-net-worth individuals in North America and Europe.
Buyout
•
* = Fund Target
Distressed
•
Contacts
shneberg@auda.net
Other
Opportunistic
•
Buying Preferences:
North America
Europe
Asia & ROW
•
•
•
Auda International is in the process of raising a USD 500 million secondaries fund. The vehicle held a second close in December 2008 and is expected to reach a final close in June 2009. Auda Secondary
Fund II will look to close deals of USD 10-50 million in size, purchasing interests in funds of a variety of types, including venture and buyout funds. It may also make purchases of direct stakes in companies.
The firm is seeking to take advantage of a perceived gap in the market for mid-market secondaries funds.
© 2009 Preqin Ltd
Venture
•
info@auda.net
Mezzanine
9
12. Listings of Secondary Funds Closed - Sample Pages
Fund Name / Firm Name
Greenpark International Investors II
Greenpark Capital
Greenpark International Investors III
Greenpark Capital
Target Close
(mn)
350 EUR
500 EUR
Global Private Equity III Secondary Fund
Gutmann Group
Hamilton Lane Secondary Fund
Hamilton Lane
Dover Street V
HarbourVest Partners
Dover Street VI
HarbourVest Partners
Headway Investment Partners
Headway Capital Partners
Headway Investment Partners II
Headway Capital Partners
Industry Ventures IV
Industry Ventures
Industry Ventures V
Industry Ventures
520 USD
© 2009 Preqin Ltd
Placement
Agent
Denning &
Company
730 EUR 2006
Denning &
Company
Geographic
Focus
North America,
West Europe,
West Europe
North America,
West Europe
Sample LPs
AP-Fonden 3, Pensioenfonds PNO Media, Virginia
Retirement System
Bramdean Asset Management, Hampshire County
Council Pension Fund, Indiana Public Employees'
Retirement Fund, Macquarie Funds Group, Pacific Life
Insurance Company, Pennsylvania Public School
Employees' Retirement System, Pensioenfonds PNO
Media, San Francisco City & County Employees'
Retirement System
Andrew W. Mellon Foundation
Europe, North
America
325 USD 2005
Europe, North
America
Gutmann Group, Public Employees' Retirement System
of Idaho
505 USD 2002
North America
521 USD 2006
Global, North
America
Alcyon, DEA Capital, Heinz Endowments, John S. and
James L. Knight Foundation, Kresge Foundation,
Pantheon Ventures, Rose Hills Foundation, University of
Vermont
Alcyon, Compagnia di San Paolo, DEA Capital, Foreign
& Colonial Investment Trust, Heinz Endowments, John
S. and James L. Knight Foundation
120 EUR
150 EUR 2008
75 USD
107 USD 2005
200 USD
265 USD 2008
Farrell
Marsh &
Co., Gold
Bridge
Capital,
Trailhead
Capital
Farrell
Marsh &
Co.,
Trailhead
Capital
2,550 JPY 2003
10,000 JPY
Fund Type Preference
26 EUR 2004
52 EUR 2005
JSPF Fund
Japan Asia Investment Co.
JSPF No.2 Fund
Japan Asia Investment Co.
Final Close Fund
(mn) Vintage
350 EUR 2004
8,000 JPY 2005
Not Used
Buyout, Venture (General)
Europe, North
America
Buyout, Mezzanine, Venture
(General)
Europe, North
America
Europe, North
America
DuPont Capital Management, Macquarie Funds Group,
Montana Board of Investments, Pacific Life Insurance
Company, South Yorkshire Pensions Authority
Europe, North
America
Macquarie Funds Group, San Bernardino County
Employees' Retirement Association
Buyout, Distressed Debt, Fund Asia, North
of Funds, General Special Sit., America
Turnaround, Venture (General)
Asia
10
13. Investor Appetite for Secondary Mkt Purchases - Sample Pages
difference to their opinion of the market. No LPs view
the market less favourably as a result.
Fig. 13.3: Make-up of Investors Looking to Buy on Secondary Market in 2009 Split by LP Type
For some LPs, the secondary market is only of interest in
the short-term and they do not anticipate it becoming a
part of their ongoing private equity investment strategies.
One such LP is Houston Municipal Employees’ Pension
System, which currently views the secondary market in
a positive light and expects good buying opportunities
to materialise in the immediate future. However, the
pension fund does not expect the secondary market to
become a core part of its private equity strategy.
Conversely, for some LPs, secondary market purchases
are set to become an increasingly important part of their
overall strategies. In fact, Nuclear Electric Insurance
has opted not to make further primary commitments to
funds in the coming year, and will instead consider only
secondary market purchases. Apteekkien Eläkekassa,
the Finnish private sector pension fund, has made
purchases on the secondary market in the past and
approximately 20% of its private equity allocation can
now be used for such purchases. It is attracted to
the market because it provides it with the opportunity
to further diversify its portfolio. It also feels pricing is
currently favourable.
Pricing on the secondary market is one of the key
attractions for LPs at present, with many LPs believing
they can purchase fund interests at significant discounts
to net asset values (NAV). Aegon USA is looking to
make purchases on the secondary market in the next
3 to 12 months in order to take advantage of pricing
in the current financial climate, and foresees the sector
becoming an increasingly important part of its overall
private equity strategy. New Jersey State Investment
Council is also looking to purchase fund interests in
2009. It is hoping to take advantage of forced selling and
obtain desirable fund interests at significant discounts
to NAV. However, some LPs expect pricing to become
more favourable in the future, including PREDICA
© 2009 Preqin Ltd
Assurances de Personnes, which is intending to look
at the market again in the latter half of 2009, when it
hopes pricing will be lower. The Canadian pension fund,
Public Sector Pension Investment Board, is holding off
from making investments in the secondary market until
at least May 2009 owing to price volatility but hopes to
secure deals at the best possible prices after this.
Though the aforementioned benefits are primarily
linked to the current financial climate, some factors
motivate certain LPs to consider secondary market
purchases regardless of the global financial situation.
Perhaps most importantly, purchasing stakes in funds
later in their lives reduces the impact of the J-curve and
improves cash flow in LPs’ portfolios. When purchasing
interests in older funds, meaningful fund performance
data will also be available, though clearly the pricing of
such fund interests will reflect this.
For some LPs, the secondary market presents them
with the opportunity to increase their exposure to
particular fund managers, often by purchasing stakes
from fellow LPs in funds in which they already hold an
interest. Brederode is looking to make purchases on the
secondary market in 2009 but will primarily be looking
to increase its stakes in its existing limited partnerships.
BankPension also informed us that it would feel more
comfortable purchasing interests in funds managed
by firms with which it has an existing relationship and
is even more likely to purchase the interest if it is in a
fund it has already made a commitment to. University of
Minnesota Foundation has also occasionally purchased
interests in funds from fellow LPs in the past. By upping
stakes in existing funds, required due diligence prior to
the investment is minimised and therefore the purchases
can be seen as a cost effective way of increasing
exposure to private equity.
11
14. Profiles for LP Secondary Market Buyers - Sample Pages
UBS Sauerborn is looking to purchase private equity fund interests during 2009. It is hoping to
purchase stakes in Europe and North America focused funds. It is interested in making purchases
which offer it the best value and as such it will consider a range of fund types and vintages. UBS
Sauerborn is also considering commitments to secondary fund of funds managers as a way to gain
exposure to the secondary market.
Contact Name
Position
Tel
Email
Jan Hoffmann
Financial Analyst
+49 (0)61 728 890 452 jan.hoffmann@ubs.com
Contact Name
Thomas Gale
United Overseas Bank
Total Assets (mn):
Likelihood of Buying:
80 Raffles Place, 5th Floor, UOB Plaza 1, 048624, Singapore
Tel: +65 6539 2492
Fax: +65 6532 7558
Total Assets (mn):
137,270 USD
PE Allocation (mn):
Likelihood of Buying: Highly Likely
Timeframe:
Buyout
Venture Distressed
Mezz.
Bank
University of Alabama System
Endowment
The University of Alabama, 401 Queen City Avenue, Tuscaloosa, AL, 35401, US
Tel: +1 205 348 5861
www.uasystem.ua.edu
Fax: +1 205 348 5915
Total Assets (mn):
800 USD
PE Allocation (mn):
9 USD (1.2%)
PE Advisor(s):
Hammond Associates
Likelihood of Buying: Possible
Timeframe:
12-24 Months
Buyout
Venture Distressed
Mezz.
Other
Opportunistic
•
Buying Preferences:
North America
Europe
Asia & ROW
•
•
•
University of Alabama System Endowment is considering purchasing fund interests on the secondary
market in 2009-10. It will only go ahead and participate in a secondary transaction if fund pricing is
favourable and if it is presented with a good enough opportunity. The endowment plan has previously
made opportunistic purchases on the secondary market. Going forward, if it decides to buy any fund
interests, it is most likely to consider buyout funds investing on a global scale with a pre-2006 vintage.
© 2009 Preqin Ltd
Email
tgale@uasystem.ua.edu
Endowment Plan
Finance / Admin Office, Room 316, Fayetteville, AR, 72701, US
Tel: +1 479 575 5581
Buying Preferences:
Endowment Plan
Tel
+1 205 975 5568
University of Arkansas Foundation
www.uobgroup.com
200 USD (0.2%)
Immediately
Other
Opportunistic
•
Buying Preferences:
North America
Europe
Asia & ROW
•
United Overseas Bank is planning to buy fund interests on the secondary market in 2009. It will
consider purchasing stakes in a range of fund types and will be looking to invest in funds with
vintages of 2003 or later. The bank will only be purchasing stakes in Asian funds.
Contact Name
Position
Tel
Email
Head of Equity and
low.hanseng
Han-Seng Low
+65 6539 2492
Alternatives
@uobgroup.com
Position
Investment Officer
705 USD
Possible
Buyout
PE Allocation (mn):
Timeframe:
Venture Distressed
Mezz.
North America
Europe
www.uark.edu
21 USD (3.0%)
Other
Opportunistic
Asia & ROW
University of Arkansas Foundation has not bought fund interests directly on the secondary market in
the past, though it has previously invested in secondary fund of funds. While it will consider
purchases on the secondary market going forward, it has yet to determine its overall investment
strategy for 2009.
Contact Name
Position
Tel
Email
Vickie Fergusson
Director, Investments +1 479 575 5581
vickie@uark.edu
University of Minnesota Foundation
Endowment Plan
McNamara Alumni Center, 200 Oak Street SE, Suite 500, Minneapolis, MN, 55455-2010, US
Tel: +1 612 767 1251
www.foundation.umn.edu
Fax: +1 612 625 4305
investments@umfia.umn.edu
Total Assets (mn):
1,743 USD
PE Allocation (mn):
349 USD (20.0%)
Likelihood of Buying: Highly Likely
Timeframe:
Immediately
Buyout
Venture Distressed
Mezz.
Other
Opportunistic
•
•
Buying Preferences:
North America
Europe
Asia & ROW
•
In January 2009, University of Minnesota Foundation found itself overallocated to private equity.
However, the endowment is looking to buy fund interests on the secondary market immediately and is
most likely to consider buying stakes in venture and buyout funds. It will primarily focus its
investments on North America. The endowment has bought fund interests on the secondary market in
the past and has done so opportunistically. It has occasionally bought interests in funds from fellow
LPs and has not used any intermediaries to do so. University of Minnesota Foundation feels that
secondary market buyers are in a very strong position given the current economic climate.
Contact Name
Position
Tel
Email
Fabrice Moyne
Investment Manager +1 612 767 1260
fabrice@umfia.org
12
16. Listings of Investors in Secondary Fund of Funds
Pennsylvania State Employees'
Retirement System
Public Pension Fund
Tel: +1 717 787 9008
30 North Third Street, Harrisburg, PA, 17101, US
Total Assets (mn):
33,800 USD
PE Allocation (mn):
6,760 USD (20.0%)
PE Advisor: Cambridge Associates, Franklin Park
Bruce Feldman
Sample Investments
Laurann Stepp
Landmark Equity Partners IV (1994), Landmark Equity Partners V (1995), Lexington Capital Partners John Winchester
II (1998), Lexington Capital Partners III (1999), Lexington Capital Partners V (2001), CS Strategic
Partners II (2003), AXA Secondary Fund III (2004), Lexington Capital Partners VI (2005), AXA
Secondary Fund IV (2006), Dover Street VII (2009)
Pensioenfonds PNO Media
P.O. Box 1340, Hilversum, 1200 BH, Netherlands
Total Assets (mn):
2,631 EUR
PE Allocation (mn):
Public Pension Fund
Pensionskasse SBB
Tel: +31 (0)35 625 92 00
www.pnomedia.nl
finance@pnomedia.nl
Jeroen Gerritsen
Wim Van Earsal
Private Sector Pension Fund
Ziegler Strasse 29, Bern, 3000, Switzerland
Total Assets (mn):
12,223 CHF
bfeldman@state.pa.us
lstepp@state.pa.us
jwinchester@state.pa.us
Fax: +31 (0)35 625 93 99
184 EUR (7.0%)
Sample Investments
Greenpark International Investors II (2004), Coller International Partners V (2006), Greenpark
International Investors III (2006)
Contacts
Director of Alternative Investments
Co-Director of Alternative Investments
CIO
www.sers.state.pa.us
Contacts
Private Equity Manager
Fiduciary Manager, SPF Beheer
investor@pnomedia.nl
wvanearsal@spfbeheer.nl
Tel: +41 (0)31 555 1811
www.pksbb.ch
Fax: +41 (0)31 555 1800
info@pksbb.ch
Contacts
Head of Asset Management
Luc Meier
luc.meier@pksbb.ch
Sample Investments
Partners Group Secondary 2006 (2006), Partners Group Secondary 2008 (2008)
PFA Pension
Sundkrogsgade 4, Copenhagen, 2100, Denmark
Total Assets (mn):
213,000 DKK
PE Allocation (mn):
Insurance Company
www.pfa.dk
info@pfa.dk
3,195 DKK (1.5%)
Sample Investments
Partners Group Secondary 2006 (2006), Partners Group Secondary 2008 (2008)
© 2009 Preqin Ltd
Tel: +45 (0)39 17 50 00
Fax: +45 (0)39 17 59 50
Peter Caroe
Henrik Franck
Henrik Heideby
Jacob Krogh
Contacts
Head of Alternative Investments
CIO
CEO
Portfolio Manager
pca@pfa.dk
hfr@pfa.dk
hby@pfa.dk
jik@pfa.dk
13
17. 2008 Secondary Market Transaction Table - Sample Pages
Seller
Buyer(s)
Activity Information
Citigroup Alternative
Investments
AlpInvest Partners,
Goldman Sachs Private
Equity Group
In May 2008, AlpInvest Partners and Goldman Sachs Private Equity Group purchased a secondary market offering worth
$400 million from Citigroup Alternative Investments. The offering consisted of interests in Court Square Capital Partners
funds and followed the sale of $1 billion in portfolio company investments held by Nikko Cordial, the firm acquired by
Citigroup in January 2008.
Partners Group, Not yet
identified
Bank of England Pension Fund entered the secondary market in January 2008, looking to sell the entirety of its private
equity portfolio. The pension system had decided to discontinue its investments in private equity following an asset
allocation review. The portfolio was divided among four buyers, with one of the buyers purchasing the majority of the
offering. Partners Group is thought to have purchased the pension fund’s stake in Close Brothers PE Fund VII in May
2008, while Campbell Lutyens managed the transactions. Bank of England Pension Fund did not re-invest the proceeds of
the secondary market sale in other alternative asset classes.
AlpInvest Partners,
Goldman Sachs Private
Equity Group
Royal Bank of Scotland (RBS) followed on from its £1 billion secondary sale of portfolio company stakes and fund interests
in December 2007 with the sale of $300 million in private equity fund interests in mid-2008. The secondary offering, which
was marketed by Credit Suisse Private Fund Group, included $150 million in undrawn commitments and was purchased
by AlpInvest Partners and Goldman Sachs Private Equity Group. RBS had intended to sell its private equity portfolio and
form a fund of funds unit, securing commitments from buyers in the form of stapled secondary transactions. The third and
final offering came to market in Q3 2008 as RBS looked to sell around $468 million worth of fund stakes to complete the
sale of its private equity portfolio.
Nationwide Insurance
N/A
In late 2008, Nationwide Insurance was negotiating with the potential buyers of a collection of its interests in venture
capital funds. The fund interests were expected to sell at $25-30 million below their aggregate net asset value. Probitas
Partners was managing the secondary offering, having successfully done so when the insurance company was last active
on the secondary market.
Halley Family
Goldman Sachs Private
Equity Group, Apollo
Management
Halley Family sold its fund interest in Change Capital Partners to Goldman Sachs Private Equity Group and Apollo
Management in Q3 2008. The family office had been the cornerstone investor in the fund before relations between itself
and the private equity firm broke down.
J. Paul Getty Trust
Pantheon Ventures
Pantheon Ventures completed the purchase of an interest in Bridgepoint Euro Private Equity II from J. Paul Getty Trust
in April 2008. The fund of funds manager made the purchase through its Pantheon Europe Fund V fund of funds vehicle,
which was permitted to use up to 20% of its capital for secondary purchases.
Not yet identified
The listed private equity fund of funds, Standard Life European Private Equity Trust (SLEPET), sold its interests in both
BC European VIII and Towerbrook Investors III to significant institutional investors very early in 2009. The fund interests
were sold at a discount to Q3 2008 net asset valuations of 4%, fetching a combined total of £7.5 million plus outstanding
commitments of £46.7 million. SLEPET took the decision to enter the secondary market in order to reduce the amount it
owed in outstanding commitments.
Bank of England Pension
Fund
Royal Bank of Scotland
Standard Life European
Private Equity Trust
© 2009 Preqin Ltd
14
21. Profiles for Intermediaries in the Secondary Market - Sample Pages
E.L.K. Capital Advisors
Service Coverage
1033 Skokie Boulevard, Suite 430, Northbrook, IL, 60062, US
Tel: +1 847 919 3544
www.elkcapitaladvisors.com
Established in 2005, E.L.K. Capital Advisors provides private equity, venture capital and real estate
managers with advisory and fundraising services. E.L.K specialises in working with emerging
managers, spin-offs and first-time funds. The firm has worked as an intermediary in secondary
transactions since 2007; however, members of the team have been involved in secondary market
intermediary services since 2000. E.L.K represents family offices and institutions in the acquisition
and sales of both single limited partnership interests and portfolios of fund interests.
Service Coverage
Location of Clients
Synthetic Partial
Portfolio Sole Fund Interest
N. America
Europe
RoW
Deal
Sale
•
•
Types of Clients Represented
Bank
•
Investment Bank
Corporate Investor
•
Private Equity Firm
Endowment Plan
•
Private Sector Pension Fund
•
Family Office / Foundation
•
Public Pension Fund
•
Other
•
Fund of Funds
Size of fund deals represented
$10m Less than $10mn
$99m
•
•
Name
Position
Randall Winters
$100m $499m
•
President
$500 - $999m
$1bn +
•
•
Tel
+1 847 919 3544
Email
rwinters
@elkcapitaladvisors.com
Far Hills Group
1180 Avenue of the Americas, 18th Floor, New York, NY, 10036, US
Tel: +1 212 840 7779
www.farhills.com
Fax: +1 212 840 1233
info@farhills.com
Far Hills Group’s main area of business centres on financial services which specialise in the
placement of alternative investment offerings to institutional investors. On a small scale, Far Hills
Group has also acted as a secondary market intermediary. It will represent single fund interests and
only deals with complete sales. Its client base has been global and it will consider any type of investor.
Historically, it has worked with family offices, foundations and private equity firms in the sale of fund
interests.
Total secondary transactions represented:
5
Location of Clients
Synthetic Partial
Portfolio Sole Fund Interest
N. America
Europe
Deal
Sale
•
Types of Clients Represented
Bank
•
Investment Bank
•
Corporate Investor
•
Private Equity Firm
•
Endowment Plan
•
Private Sector Pension Fund
•
Family Office / Foundation
•
Public Pension Fund
•
Fund of Funds
•
Other
•
Size of fund deals represented
$10m $100m Less than $10mn
$99m
$499m
•
•
Name
Position
Senior Managing
Mike Halvorson
Director
$500 - $999m
$1bn +
Tel
Email
+1 212 840 7779
mhalvorson@farhills.com
Fidequity
42 Berkeley Square, London, W1J 5AW, UK
Tel: +44 (0)20 7318 0800
www.fidequity.com
Fidequity began providing secondary market services in 2007. It aims to provide its clients with a
range of solution-orientated services and supports them with their private placement requirements for
secondary transactions. Fidequity offers complete sale and synthetic deal transaction procedures and
will represent single fund interests as well as portfolios.
Fidequity represents clients of different sizes and types situated in North America, Europe and Asia
and Rest of World. It provides specialist advice on all aspects of the secondary market including the
restructuring of portfolios ranging from USD 10 million to USD 1 billion in size. Fidequity also supports
clients that wish to actively manage their private equity holdings by advising them on viable strategies.
Total secondary transactions represented:
35
Total value of secondary transactions represented: USD 1,000mn
Service Coverage
Location of Clients
Synthetic Partial
Portfolio Sole Fund Interest
N. America
Europe
Deal
Sale
•
•
•
•
•
Types of Clients Represented
Bank
•
Investment Bank
Corporate Investor
© 2009 Preqin Ltd
RoW
•
Private Equity Firm
RoW
•
•
•
15
2009 Preqin Private Equity
Secondaries Review:
Order Form
The 2009 Preqin Private Equity Secondaries Review is the most comprehensive guide to
the sector ever produced, featuring over 300 pages of detailed information including:
• Detailed analysis examining the history and development of the industry, historic NAV
vs. trading price premiums and discounts, performance of secondary fund of funds, fund
of funds activity in secondaries, institutional investor buyers and sellers, intermediaries,
placement agents and more
• Profiles for 53 specialist secondary fund of funds managers, 66 fund of funds managers
with secondaries interests, 74 institutional investor buyers and 24 sellers, 40 intermediary
firms and placement agents, 156 investors in secondary fund of funds
• Results of surveys of GPs, LPs, intermediaries
www.preqin.com/secondaries
• Listings of 155 secondaries funds closed historically, 27 funds currently in the market,
individual net to LP fund performance for 94 vehicles.
• Transaction table showing 20 deals done in 2008
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