Getting hold of investment professionals in Europe at this time of year can be tricky: record snowfalls in Europe’s winter playgrounds prove too tempting for GPs and LPs alike. But imagine the frustration of returning to the office after a well-earned break to find you have 20 business days to make an investment decision or your exposure to assets in a top buyout fund will be sold to Coller Capital and Goldman Sachs. That’s how some limited partners in Nordic Capital’s 2008-vintage fund are feeling.
In case you missed it, the Scandinavian buyout firm hired advisor Campbell Lutyens to run a secondaries process on its €4.3 billion Nordic Capital VII, as sister publication Secondaries Investor reported in September. Coller and Goldman were selected as the buyers and LPs were given until 5 March to decide whether to roll over into a five-year continuation fund.
With as much as €2.2 billion up for grabs in net asset value (not to mention the 11 percent premium the buyers are willing to pay) the deal is shaping up to be Europe’s biggest GP-led secondaries transaction – which is sure to delight the firm and the advisor, as well as LPs which want cash back and which stand to benefit from the deal.
Not all LPs are sanguine, however. Some limited partners Secondaries Investor spoke to called the short time frame to read a thousand-page document unreasonable and questioned why Nordic was rushing to close the deal. For investors such as pension funds, whose investment committees tend to meet quarterly, the 20-day timeline could prove impossible.
One LP said there was little chance they would even get as far as the data room as they were too busy with multiple due diligence processes, describing the imposition of the timeline as “very arrogant and unrealistic”.
These processes are to some extent uncharted territory – there is little in the way of best practice to guide proceedings. They are complex and need to cater for an array of investors with different wants and needs. Indeed, another investor in the fund said they had “little sympathy” for LPs complaining about deadlines, saying that a binary “yes” or “no” decision – with no terms to negotiate – should not take long to make. The same investor said they felt Nordic had been patient and transparent with investors.
One way to look at the 5 March deadline is that Nordic is creating an exit for the unlisted assets – as one might expect for a 10-year-old fund – and giving LPs 20 days to decide whether they want to continue their exposure to those assets. Another way to look at it is that LPs which fail to respond by the deadline will have their stakes in the fund automatically sold to Coller and Goldman at a price they have to trust is reasonable.
Your view may depend on whether you are an investment management business with an army of analysts and an active secondaries programme, or a pension fund with a somewhat leaner staff.
A source close to the transaction stressed that the majority of LPs are in favour of the proposal. This may indeed be the case, but will we ever know for sure? An LP which takes the liquidity option could be seen as endorsing the process, when in fact they feel like they have had little choice.
The development of this type of process, of which this deal is a significant step, is highlighting divisions in the LP universe. In Nordic’s case, an overwhelming amount of data to examine within a short amount of time has ruffled the feathers of some LPs. The deal may be a success for the buyers, advisor and many LPs, but frustrated investors may turn frosty next time a GP-led process slides their way.