Private equity's secondary market is no doubt growing in size and influence, but the inner circle of active, dedicated specialists is still curiously small. Naming the prominent market practitioners would not need more than the proverbial back of the envelope to list. Had you done this several years back, the names of these players would not have changed much at all since then.
The fact that arch competitors talking about their rivals tend to refer to each other by their first names is telling too: you'll hear about Jeremy (Coller, that is, in case you live on Mars), Steve (Can at CSFB), Michael (Granoff at Pomona) and Marleen (Groen at Greenpark) for example, and you'll know exactly who is being referred to.
Don't let this apparent cosiness mislead you though: secondary pros are as competitive as anyone in private equity, and deal envy is undoubtedly one of the market's main occupational hazards.
That aside, it seems that once you're in the secondary business, you are in – and probably making a very decent living too. By the same token, if you didn't enter some time ago, making a move now would appear to be difficult, at least if the lack of recent newcomers is anything to go by.
Take the world's leading investment banks, for example. These institutions are typically very quick to pick up on new and potentially lucrative trading opportunities. But with the notable exceptions of Goldman Sachs and CSFB, whose secondary platforms appear to be going from strength to strength, investment banks have remained conspicuous by their absence in this market.
What this suggests is what incumbent practitioners will also tell you only too readily: that the barriers to entry are higher than you might think. “The secondary market is easy to understand but hard to do,” says Brian Wright of Pomona Capital. Pomona can be classified as a veteran secondary firm, with five secondary funds already invested.
“It's not that easy to make money either,” Wright continues. “You need to be able to find deals, price them properly, move quickly, win GPs' consent to transfers and, importantly, know how to close them successfully.”
The secondary market is easy to understand but hard to do
In other words, you need to know how to play the game – and it's a game that requires not just technical know-how but also negotiating skill and interpersonal acumen. Maybe that's why the investment banks have struggled. It is also the reason why a new entrant into secondaries is likely to either be a spinout from an established house or a fund of funds manager eager to take an already existing secondary presence to a new level.
Headway Capital, a new group with an office in London that quietly opened for business six months ago, falls into the former category. Its founding partners are Sebastian Junoy, Christiaan de Lint and Laura Shen, all former investment professionals at Coller Capital.
Headway is the second ex-Coller team to take the plunge: four and a half years ago Marleen Groen and Joanna Jordan moved out of Mayfair's Cavendish Square to set up Greenpark Capital. The firm worked hard to carve out their niche and raise a fund, with everyone in this tightly knit world watching. The result is that Greenpark has now become part of the secondary establishment. Observers predict that, with the first fund well invested, Greenpark's return to the fundraising trail will be a pleasant one.
Headway has it all to do, but according to de Lint, who spent five years at Coller, the market is ripe for new niche firms. “There is a segmentation in secondaries now that wasn't there two to three years ago, and further differentiation is likely.”
For Headway, the focus will be on smaller transactions including purchases of single positions in buyout, venture and mezzanine fund investments; portfolios of fund investments; portfolios of direct investments; tail-end funds and co-investments. According to de Lint, the group has already participated in the acquisition of one portfolio of direct investments and is currently in the process of closing another.
Headway is not currently raising a fund. Instead, it is working with several family offices that, on the basis of what de Lint describes as “a number of formal and informal” relationships, will help fund deals sourced by Headway. Fundraising, says de Lint, is going to be looked at further down the line.
Depending on Headway's progress, other secondary specialists currently in gainful employment at some of the market's leading houses might be tempted to follow their lead. If that happens, next time you work out who's who in secondaries, you may have to find a bigger envelope.