How does the opportunity set for Hamilton Lane’s most recent secondaries fund—which closed on its $900 million hard-cap in September—differ from the prior two funds?
Most notably, the secondaries market has matured. It’s become much more accessible and understood for limited partners looking to sell assets and, as a result, the opportunity set is greater. We look to buy single funds and small portfolios of funds in one-off transactions wherein we’re dealing directly with sellers, versus buying big portfolios or participating in auctions.
What are you seeing in terms of the quality of opportunities in the market?
We’re seeing more high quality general partners being traded today than ever before and we’re also seeing more deals being brought by GPs, and we try to focus on those types of deals. Today, there is a broader subset of different fund and investment types on the LP secondary side, with participation from emerging markets like Brazil and China. We are also seeing an uptick in fund restructurings, which seems to be the topic of the day. We’re certainly spending time looking for opportunities in that space where we can unlock value in the restructuring of a fund and in the restructuring of a GP, but we’re not interested in providing fresh capital to managers that have not performed in the past.
What other changes have you seen to the secondaries market in the past couple of years?
Today’s market has certainly become very focused on portfolio rebalancing, [with] institutional LPs using the secondary market as a mechanism to rebalance or restructure their portfolios. That active portfolio management is something that more LPs are embracing today. We’re well-positioned in the market largely due to the 2,200 plus funds in our database; that information comes from our primary business, and we’re leveraging the active data in those funds to spot opportunities on the secondaries side.
What is your prediction for total secondary transaction volume for 2013?
The published predictions are all over the place. From our perspective, transaction volume in the first half of the year was slower, but the second half has picked up significantly. Overall I think you’re going to see numbers similar to what you saw in 2011 and 2012, in terms of total volume, and that will largely be due to a very strong second half.
How are firms going to need to adjust to the evolving and growing opportunity set in secondaries in 2014?
It really comes down to access: access to information as well as to funds, both of which drive the deal flow that you see. Flexibility is also very important; being able to identify which opportunities are attractive and to act on those quickly is key. Having the dedicated staff to be able to analyse, underwrite and price in a requisite amount of time is critical as well.