Story of the year: Secondaries firms go after single assets

If one trend has dominated secondaries more than any other in 2018, it is the evolution of general partner-led restructurings.

A raft of large blue-chip processes made the headlines this year, including Thomas H Lee’s potential transaction involving its 2006-vintage buyout vehicle, which LPs are expected to decide on by the end of the year. Nordic Capital’s restructuring of its 2008-vintage fund in March was the largest-ever GP-led restructuring, involving around €1.5 billion in net asset value trading hands.

Although GP-leds have been emerging as a crucial part of the secondaries market for the past two years – they accounted for 26 percent of the $27 billion of deal volume in H1 alone, according to Greenhill data – 2018 is particularly notable for the rise of big-name single-asset fund restructurings.

PAI Partners completed a process on its fourth flagship vehicle in September, transferring the fund’s remaining asset into a continuation vehicle. Swedish chemical manufacturer Perstorp moved from the €2.69 billion 2005-vintage PAI Europe IV into a fund managed by PAI that was backed by Landmark Partners and other investors.

It’s not alone; Goldman Sachs Asset Management and Landmark backed a single-asset restructuring on TDR Capital’s 2007-vintage €2.1 billion TDR Capital II. The remaining asset in Fund II is Stonegate Pubs, a British firm that owns pub chains including Slug and Lettuce and Yates’s. In June, HarbourVest Partners emerged as lead investor in a $1.9 billion single-asset energy fund restructuring.

The average secondaries buyer completed between three and four single-asset deals in 2017, according to Campbell Lutyens, a figure the firm’s US partner Gerald Cooper described to Secondaries Investor as “pretty astonishing” given that historically the vast majority of secondaries investors only pursued diverse portfolios.

Single-asset restructurings are typically being employed in situations where one asset in a portfolio requires extra time or capital to reach maximum value and not all limited partners want to stick around, according to Johanna Lottmann, a director in Lazard’s private fund advisory group.

Such deals can provide “better than market” valuations and carry inherent pricing advantages, Rede Partners’ head of secondaries Yaron Zafir wrote in October.

Increasingly sophisticated buyers are also not as troubled by highly concentrated risk as they used to be. With GP-leds showing no sign of slowing down, expect to see more of these deals in the new year.

– Rod James and Adam Le contributed to this report.