Interest in the secondaries market has never been greater. The secondaries market has until recently been a small sub-section of the private equity market. However, rapid growth in the primary market over recent years, over-allocation among some investors and the increasing use of secondaries as a portfolio management tool has driven a rapid expansion. From 2000-2006 the secondaries market grew from $3bn to $20bn. After raising a total of just $3.7 billion between 1991 and 1997, secondary firms raised over $6 billion a year in 2005 and 2006. Secondary markets offer buyers private equity at discounted price, diversification of portfolios, quick returns on investment, benefit off hindsight and access to selective funds. For sellers, the secondaries market is a means to liquidity in addition to the possibility of actively managing a private PE portfolio that was previously not available.
Divesting private equity can be challenging. Breslin are specialists in private equity secondary transactions having previously managed over $1bn in private equity commitments. Breslin is highly qualified to provide an assessment quality and potential of a private equity fund, an unbiased investigation of the transaction value and transaction management.
Sellers on the secondary market include financial institutions, insurance companies, corporations, private equity fund-of-funds and high net worth individual investors. Secondaries offer additional exit routes in illiquid equity. The benefits of secondary transactions as a financial exit for private equity investors include the divestment of non-core assets, strategic reorientation of funds and corporate investors, early realization on returns and liquidity for new investments.
- Building of the Investment Case
- Preparation of Due Diligence
- Approach of Buyers
- Controlled Auction of Assets
- Negotiations with potential Buyers
- Closing of Transaction and Transfer of Assets
- Strict Confidentiality
Buying secondary interests in private equity funds is a useful tool to accelerate the build up of a diversified private equity portfolio. As secondary investments are later in the life of a fund, the capital from secondary investments comes back quickly and returns are high.
Secondary purchases are made at discounts to the original purchase price, but in the last years with abundance of money, discounts were adapted to appropriate and market relevant asset valuations. In addition, success for secondary buyers is aided by the benefit of hindsight, being able to observe the performance of a particular private equity fund portfolio before buying.
- Proactive search and Analysis of Deal Opportunities
- Deal Presentation and Due Diligence
- Transaction Management
- Portfolio Management