Secondaries: A market shake-up

Earlier this summer, Nigel Dawn, who started the secondaries advisory business at UBS, shocked many market professionals by announcing his retirement from the bank. Dawn had led the group, which had closed some of the most significant secondary sales in the business. 

Weeks later, Dawn again shocked the market when it was revealed he was joining investment bank Evercore to launch a rival secondary advisory business. Adding to the drama, Evercore also said Dawn would be joined by Nicolas Lanel, another secondaries executive from UBS, who would head up the European side of its ‘Private Capital Business’. 

Strangely, UBS had previously announced that Lanel and Philip Tsai would replace Dawn at the helm of the secondary advisor business; it’s not clear what changed. 

This was a significant development. UBS has been one of the biggest players in secondary advisory work, alongside Cogent Partners (although firms like Park Hill Group, Campbell Lutyens and Houlihan Lokey have also been bolstering their capabilities in the business in recent years).

Some in the market have even questioned whether it points to an underlying flaw in the captive model – i.e. whether it affords the principals appropriate compensation for the kind of business they generate. The UBS secondaries team may be one of the leaders in the business, but the revenue it generates barely “moves the needle” relative to the bank’s total assets, sources point out. Some even wondered whether UBS would use Dawn’s departure to get out of the business.

However, UBS seems to have answered that question emphatically. In an interview with Private Equity Internationalin August, Tsai said UBS had engaged recruiters to hire additional professionals for the team.

“We’re looking to invest and grow the business … there’s a strong commitment and investment that the firm has continued to make and plans to make,” Tsai told PEl. “We’re looking to expand our team in the US and London.” 

In fact, the bank has already won two “significant” mandates since Dawn’s departure, Tsai said, declining to disclose details. 

UBS – which is known for brokering large trades – is also starting to explore opportunities around GP restructurings and other ‘non-traditional’ secondary deals like those related to real estate or infrastructure fund sales. 

Meanwhile, Evercore seems poised to make a run at some of the private funds secondaries sales that have been long dominated by UBS and Cogent. UBS, for example, helped the New York City pension system sell about $1 billion worth of its private equity portfolio, while Cogent has worked over the years with the California Public Employees’ Retirement System and Canada’s Public Sector Pension Investment Board, as well as advising on the restructuring of Behrman Capital’s $1.2 billion third fund. 

Evercore, which set up its private placement business by recruiting the team from Lehman Brothers after that bank went bankrupt, gave Dawn and Lanel minority ownership stakes in the business. The bank was planning to launch the business in the second half of the year, as well as recruit more executives for the team.

With the secondaries market poised for a busy final few months of the year, it will be interesting to see how this race for business plays out.