Secondaries roundtable: Getting complicated

MEET THE ROUNDTABLE

JOSEPH MARKS, CAPITAL DYNAMICS
Marks is a managing director and head of secondaries in investment management. He has 16 years of experience in private equity and has previously been responsible for secondary portfolio transactions at Coller Capital in New York.

Todd Miller, COGENT PARTNERS
Miller is a managing director and is primarily responsible for coverage and execution of secondary private equity transactions for North American clients. Prior to joining Cogent Partners in 2005, he spent several years in traditional investment banking, primarily with Credit Suisse First Boston.

ROBERT SHANFIELD, LANDMARK PARTNERS
Shanfield is a partner and leads the secondary private equity business. He has been with Landmark since 1998, prior to which he spent 10 years at GE Capital, where he was a senior vice president in GE Capital’s equity capital group, responsible for originating and managing private equity investments in the US and Europe.

ADRIAN MILLAN, PARK HILL GROUP
Millan is a managing director at Park Hill Group, a specialised secondary advisor. Prior to joining Park Hill in 2009, he was a director with Citigroup Alternative Investments, where he led secondary transactions and business development initiatives. He has 14 years of experience
and previously worked at JP Morgan Chase.

DAVID TEGELER, PROSKAUER
Tegeler is a partner in the corporate department and co-head of the Global Private Investment Funds Group. He concentrates on representing private investment fund sponsors, secondaries firms, institutional investors and industry advisors in fund formations, buy and sell side secondary transactions, restructurings and governance issues.

David Wachter, W CAPITAL
Wachter is a founding partner of W Capital Partners, which provides private equity shareholders with liquidity for their investments. Prior to founding W Capital in 2001, he held senior roles as an investment banker and private equity investor at Lehman Brothers and Jefferies.

 

PEI: What surprised you about the secondaries market in 2013?

Todd Miller: What surprised us was the amount of one-off volume transacted, including large proprietary deals. We all knew that clients had single positions and they were being traded if someone found a good price, but it was the number of transactions and the amount that surprised us. This was a part of the market we weren’t actually aware of last year.

Joseph Marks: We actually also saw a couple of cases including a transaction we did where the ground rules set out by the seller dictated that only existing investors were invited to participate. Additionally, only dedicated secondary buyers, so no non-traditional buyers, were allowed to bid. The seller wanted a counterparty that would bring a lot of certainty to the process – even at the expense of making a price concession in exchange for that certainty.

Adrian Millan: What surprised us was the diversity of participants. That shift really manifested itself last year when the top ten holders of committed capital were no longer the only dominant forces in the market. Sovereigns and opportunistic LPs have changed the rules of engagement and how you bring large deals to the market.

David Tegeler: We’ve always handled end-of-fund-life issues for our sponsor clients and have at times struggled to align interests. For us, 2013 was the year where that work started to spill over into the secondaries area, as established secondary firms provided outside capital for fund restructurings or recaps. While the number of these deals that actually close is relatively small, it is a course of action considered by many fund clients. This is a trend that has continued to gather momentum in early 2014 and we feel that these deals are not going away any time soon.

David Wachter: From our perspective, the challenge in this past year has been the significant market price movement. This is causing a lot of price discovery discussions and situations where sellers are highly sensitive to fair market value and discounts. In direct secondaries, there is no concept of NAV and discounts to NAV, so pricing is based on dollar valuation views of the buyer and seller. In order to find opportunities where we can get transactions done, it requires more rifle-shot-oriented situations where there’s an ideal fit in seller objectives and buyer appetite.