Wall of deals

AXA is set to strengthen its funds of funds team in anticipation of further large opportunities in the secondary market.

In April, AXA Private Equity returned to the secondary market with a bang completing what it called “one of the largest secondary private equity transactions in history”: the acquisition of Bank of America’s $1.9 billion portfolio of limited partnership interests in private equity funds.

This was followed in July with the purchase of €543 million of French bank Natixis’ private equity operations: another of the larger deals on the secondary market this year.

Going forward, AXA is poised for more big deals. With more banks offloading assets, there will be some very large portfolios available on the market, giving scope for more deals in the size range of the Bank of America transaction, says Vincent Gombault, managing director of primary and secondary fund of funds at AXA Private Equity.

AXA will therefore be increasing the size of its funds of funds team – which deals with both primary and secondary deals – for its fifth secondaries fund of funds. Gombault is looking to expand the 100-strong team, specifically in North America and Asia.

AXA had withdrawn from the secondary market in 2008 after becoming concerned by some of the high premiums which some secondaries buyers were paying. The firm continued to monitor the market, says Gombault, but only did “one or two small transactions”.  “We thought, ‘it’s not possible to do well in this kind of market, we will have a big disaster,’” he says.

During its absence, AXA conducted due diligence of all leveraged deals done between 2006 and 2008. “We wanted to know exactly how the situation was asset by asset, company by company,” says Gombault, who was especially concerned about whether or not underlying portfolio companies would be in breach of any covenants.

“Our main question was visibility on the asset,” he says. “Because, remember, one year ago, the main message in the private equity area was the famous ‘wall of debt’”.
However, things did not turn out so bad.

“At the beginning the crisis in mid-2007, my feeling was that it was going to be a disaster,” says Gombault, who now believes that despite many players overpaying for assets during the buyout boom, private equity GPs, on the whole, actually bought “good, strong companies”. AXA’s team found that GPs on its funds had been able to take care of the debt loads on these companies quite effectively.

“Our feeling on a statistical approach,” Gombault says, “Is that 95 percent of those deals done during this period will be able to go through the crisis and win money for private equity investors.”