The consensus among advisers was that GP-led deals accounted for the majority of secondaries deal volume in the first half of 2021 – the first time this has happened. The second half showed, however, that private equity portfolio sales are like buses; there may be none for an age and then several come along at once.

The latest transaction to cross our desk is the sale of a portfolio worth around $1.3 billion by the pension fund of Shell, while Caisse de dépôt et placement du Québec closed the sale of a $3 billion portfolio to Ardian. This came shortly after affiliate title Secondaries Investor revealed California Public Employees’ Retirement System was looking to sell up to $6 billion of stakes in what would likely be the largest portfolio sale. After a barren patch for the LP market, it feels like 2019 all over again.

There are several factors at play. The pandemic has caused LPs to think carefully about the funds and managers they want to keep on their books. Opportunistic selling is made more attractive by valuations, which from June have begun to reflect the recovery of the wider economy, according to two buy-side sources.

Outperformance in portfolios is also driving sales. The PE portfolio of Harvard Management Company, for example, returned 77 percent in the 12 months to June, encouraging its investment team to lock in returns with a $1 billion portfolio sale, the majority of which was acquired by Ardian. Portfolio appreciation has pushed pensions such as Virginia Retirement System beyond their PE allocation limits, suggesting more transactions could be on the horizon.

Dry powder

Dry powder continues to pile up. Blackstone’s Strategic Partners, which is in market targeting $13.5 billion for its ninth flagship fund, is on course to hit $20 billion after collecting $12.8 billion in a single quarter, chief operating officer Jon Gray said on an earnings call. Lexington Capital Partners X, which is targeting $15 billion, could well do the same. Dedicated dry powder stood at $105 billion in December, down from $113 billion in December 2020 – this will be replenished with at least $73 billion of targeted secondaries capital in 2022, according to Evercore.

The rise in LP market activity has been accompanied by subtle changes in deal characteristics. Secondaries Investor understands that Ardian initially opted not to buy a chunk of Harvard’s portfolio. Then, at the endowment’s request, the firm gave up 50 percent stakes in two funds to be bundled with the excluded portfolio, which was sold to a separate buyer. Such horse trading would have been more tricky earlier in 2021, when buyers’ thirst for diversification meant the LPs that did sell had the whip hand, says a source familiar with the Harvard sale.

In the GP-led market, capital constraints remain. On a daily basis, buyers and advisers bemoan the fact that all the concentrated deals that could get done will not. Adviser Lazard said it expects demand to “taper” in the first quarter as buyers that have reached their concentration limits seek out more diversified portfolios. Sixty-three percent of buyers deployed over 40 percent of their dry powder in 2021, per Lazard.

At a time when single-asset GP-led deals are on everyone’s lips, don’t bid farewell to the LP portfolio market ­anytime soon.