Secondaries: GP-led restucturings

A number of GP-led restructurings have made headlines this year, including a recent deal between HarbourVest Partners and Portobello Capital which saw seven portfolio companies rolled over into a new fund managed by Portobello, with HarbourVest becoming the majority LP.

Such deals can take up to 18 months and may ultimately fail if existing LPs in the fund cannot agree to new terms. Also, some LPs haven’t been open to giving a fund new terms and resetting carry.

Mark McDonald, who leads the secondary advisory business for Credit Suisse’s private fund group in EMEA and Asia, says the stigma around GP-led restructurings has lifted in recent years.

“LPs have been somewhat sceptical about the motivation of both the GP and the adviser in certain cases and unless a clear value proposition exists to all stakeholders in a transaction, this scepticism is understandable,” he says.

The key to executing successful GP-led deals is working with both GPs and LPs to examine the underlying assets.

“We’ve taken a pragmatic, principal investment approach to this market. We’re doing a lot of upfront due diligence on the GP, the assets and the investor base and designing a bespoke process, in consultation with the advisory board and LPs, before considering launching a process. This is the only way you can build-in trust and certainty, by taking on all the constituent stakeholders’ views and solving for them,” says McDonald.

Ironing out potential issues and aligning interests before beginning a GP-led deal allows Credit Suisse to streamline the process, according to McDonald, who says the firm has worked on 22 GP-led transactions over the last 18 months. He sees these deals gaining credibility as a liquidity solution, especially in Asia where deal flow has grown from 5 percent to 20 percent over the last five years for his firm.