Side Letter: Five tips for LP stake sales; BC’s vintage conviction; PE’s deal volume resilience

PJT's head of LP advisory shares five top tips for anyone considering a fund stake sale. Plus: Why BC Partners is bullish on 2022-vintages; and private equity deal volumes are defying market uncertainty. Here's today's brief, for our valued subscribers only.

Just happened

So you want to sell your fund stake?
There are multiple reasons why LPs may be considering parting ways with their fund stakes this year. A confluence of events including some public pension plans finding themselves overallocated to private markets; a slowdown in distributions; and funds returning to market faster than before, forcing LPs to seek liquidity options to free up cash, has made the opportunity to sell stakes in private markets funds all the more attractive. Side Letter recently caught up with Adrian Millan, a partner who leads investment bank PJT Partners’ LP advisory practice, who discussed what LPs should keep in mind when considering selling a fund interest or interests. They are:

  • Select the right assets. Choose fund stakes that will attract the highest prices on the secondaries market relative to your foregone return; maximise the potential for the buyer to add leverage and recognise the that some GPs have transfer restrictions on who can buy stakes in their funds.
  • Understand how sponsor-initiated processes work. An organised GP-led process may mean you get a higher price for your fund stake as opposed to selling it on your own.
  • Selling your stake isn’t the only option. NAV financing and preferred equity options can make more sense in some cases.
  • Anticipate market supply. More sellers can mean more competition to attract buyers. If you’re not competitive on terms, you may lose out.
  • Scale to the market. Fund stakes larger than $100 million may need to be sold in tranches, and smaller sales over multiple time periods can lead to overall higher pricing.

Bullish BC
For all the uncertainty surrounding markets in 2022, Jean-Baptiste Wautier, chief investment officer of buyout firm BC Partners, seems pretty sanguine. Speaking to our colleagues at the newly launched PE Hub Europe this month, Wautier said 2022 could produce one of the best performing vintages in more than 20 years (registration required). Wautier’s optimism is predicated on a major repricing once debt markets in Europe reopen, which could be as early as next year. Price certainty is top of mind for BC, he adds, noting that the firm has been “incredibly selective” in buying and selling assets.“When we’ve had periods of quasi closures like this, for example, post-Lehman, it’s usually for less than a year because the system cannot stop functioning for too long,” he adds. “Banks need revenues to exist, and to get revenue they need to lend money. Institutional investors need returns to meet their liabilities, such as pension payments.” BC will no doubt be counting on that fact: it expects to launch Fund XII in the second half of 2023, per an investor letter seen by PEI this year.

They did the math

Summer lull?
PE and VC dealmaking slowed in July as inflation, interest rate hikes and pricing uncertainty took their toll. Deal value fell to $43.1 billion in July, down 63 percent from the same month last year, with deal count also dipping by 29.2 percent, according to S&P Global Market Intelligence. Asia-Pacific bolstered July’s total, with 554 deals worth a combined $17.28 billion. North America had just 516 deals, totalling $12.34 billion, and Europe just 432 deals for $7.14 billion.

Deal value was down 25.7 percent to $519.12 billion for the first seven months of the year, though deal volume remained resilient, falling just 3.6 percent to 14,411. It’s also worth noting that those totals are both elevated over a five-year period. Whether dealmaking remains as active in the back end of the year, however, is the billion dollar question.


A new chapter in new energy
HitecVision, a Norwegian PE firm with $3.55 billion of assets under management and a 20-year legacy in the oil and gas sector, is turning a page and focusing on the energy transition, per a statement. Its New Energy Fund closed on its €875 million hard-cap this month, with an additional €175 million raised in co-investment capital.

Some €540 million has already been deployed across three investments: Norwegian offshore wind company Vårgrønn; district heating company Hafslund Oslo Celsio; and Aneo, a Nordics-focused renewable energy platform launched alongside Norwegian power company TrønderEnergi. LPs include Ardian, Swedish pension AP1, Norwegian pension fund KLP, the Los Angeles County Employees Retirement Association and Manulife.

Asked by our colleagues at Infrastructure Investor what prompted the shift in strategy, the firm declined via a spokesperson to comment. According to the statement, however, all future investments will be in companies that contribute to the energy transition. It also stated that the company was “very proud” of its legacy.

Today’s letter was prepared by Alex Lynn with Adam LeCarmela MendozaZak Bentley and Madeleine Farman