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NEWS COMPENDIUM Tracking the dynamic secondaries market across asset classes contents

Headlines Q&A Welcome

Temasek’s Astrea II Catching up with Dear reader, nearly $1bn in size CalPERS Welcome to our special Réal Desrochers, head of private Motion Equity restructuring equity for the $277bn California Secondaries Investor compendium. cost $430m Public Employees’ Retirement System, talks us through the Regular visitors to our Pantheon: restructurings benchmark LP’s secondaries website will know we offer worth $70.5bn strategy. a unique daily mix of stories, often providing new details Coller’s next fundraise Spinning out and key insights on market expected this year Andrew Dewar, managing developments. We track partner of Barclays Africa spin-out the institutions, funds and UK mulls $760m fund Rockwood , talks us transactions shaping the interests sale through his firm’s spin-out. secondaries markets within private equity, real estate, Metropolitan to target infrastructure and private debt. real estate Secondaries UBS on $45bn in dry powder We also showcase hand- National Bank of Greece Rodney Reid, UBS’ head of selected, third-party secondaries advisory for EMENA, seeks buyer for PE spin-out commentary and research from discusses trends shaping the market this year. industry thought leaders on a Buyers lower weekly basis. return expectations The private (equity) This compendium collates some ADIA eyes fund life of banks of the most interesting – and restructurings Coller Capital chief executive most popular – items we’ve officer Tim Jones explains the published recently, giving you Cogent founder cycles of regulation that could an informative snapshot of launches new firm lead to banks re-joining the buy- today’s secondaries markets.

We hope you enjoy the Data collection and encourage you to visit our website for more.

By the numbers Best wishes, A brief look at the recent investment trends and figures gripping the global secondaries markets.

Funds in market Brian Cantwell A detailed list of all the current global secondaries funds in market, sorted Editor, Secondaries Investor by region.

1 NEWS COMPENDIUM 2014 headlines

Temasek’s enterprise development group, letters of interest, which led to 10 parties said. “With the world recovering from performing due diligence and three official Temasek’s Astrea II the troughs of the global financial crisis, bids. It was unclear at press time who the nearly $1bn in size we assessed that it was timely for the next unsuccessful bidders were. Astrea co-investment product, and are More details emerge about now very pleased to have six high quality Rede Partners advised on the transaction. and like-minded long term institutional Both Rede and HarbourVest declined to the Ardian-managed fund co-investors with us in the Astrea II comment; Motion didn’t respond to a comprising 36 LP stakes. portfolio.” request for comment.

The co-investment fund Temasek made The Motion deal represents one of the public in April contains 36 private equity first major European restructuring of an fund stakes worth nearly $1 billion, end-of-life fund. according to three sources close to the Motion Equity matter. restructuring cost In April 2012 Cognetas rebranded itself as Motion Equity Partners in a bid to The Astrea II portfolio includes interests $430m shake off negative publicity following in European private equity funds managed the departure of the firm’s managing by EQT, BC Partners, Equistone and New details have emerged partner and founder, Nigel McConnell. PAI Partners, Secondaries Investor has on HarbourVest’s ‘rescue’ McConnell left Cognetas in 2011 due to exclusively revealed. of Motion’s €1.25bn Fund “strategic differences”, as reported by PEI II, one of the first major at the time. An independent valuation of the fund restructurings of a tail-end was provided by Ardian, which is one of fund in Europe. Subsequently, Motion closed its office in six co-investors and the fund’s appointed Frankfurt, reduced its office in GP, according to a Temasek statement HarbourVest Partners invested $430 and shifted its investment focus to French that noted the Singaporean institutional and Italian markets. investor would retain a 38 percent stake million to seal the recent Motion Equity in Astrea II. Partners restructuring, Secondaries Investor has learned. The firm’s second vehicle is fully deployed and has only managed to exit one business Secondaries Investor understands Ardian’s Approximately $400 million of that from this portfolio. It sold Ixetic, a stake to be worth up to $200 million, producer of high-performance pumps for which it financed with a mix of cash from amount went towards purchasing LP interests in the firm’s Fund II, with the the automotive sector in October 2012, Ardian’s secondaries Fund VI, debt and netting the firm a 2.2x return. sales of Astrea II stakes to its investors. balance allowing Motion’s management team to make further or follow-on With a lack of returns, Motion was not Temasek could not reached for comment investments, according to two sources close to the deal. in a position to raise a new fund. While at press time and Ardian declined to the fund is still in wind-down mode, comment. LPs in Motion’s Fund II, a €1.25 billion the backing from HarbourVest has given The launch of Astrea II is part of the Motion some extra time to realise the ’s longer term vehicle raised in 2005, had the option of either selling their stakes or staying in remaining assets, without being perceived initiative to broaden its co-investment as distressed sellers. In addition, the base, with the aim to eventually market the restructured vehicle for the next four years. Approximately half of Motion’s Motion team has been re-incentivised. It is products to retail investors, according to understood there was a carry reset on the its statement. LPs sold their stakes, leaving around 20 investors in the fund. HarbourVest then fund as part of the restructuring back in provided capital enough for two to three 2011. There is a bit of carry for the team “Launching Astrea I in 2006 gave us an and HarbourVest will top this up slightly. opportunity to start exploring how to new deals, sister title Private Equity International previously reported. broaden our co-investor base, starting The Motion deal follows some well- with long term institutional investors,” known restructurings that took place in Dilhan Pillay Sandrasegara, head of The auction process HarbourVest won took six months: there were twenty initial the US last year, including that of Willis

2 NEWS COMPENDIUM 2014 Stein & Company and Behrman Partners. “In fact, we’ve been able to identify 870 by the end of 2014. In the case of the Willis Stein fund, a active funds that are at least 10 years old, majority of existing LPs were bought out but only 200 of these funds have an NAV Coller declined to comment. with financing provided by Landmark of at least $100 million.” Partners, Vision Capital and Pinebridge The London-headquartered firm held the Investments, as well as Willis Stein High-profile restructurings last year final close for CIP VI on $5.5 billion in management. With Behrman Capital’s included Motion Equity Partners, July 2012. CIP VI invests in assets globally fund, the five remaining portfolio restructured by HarbourVest for $430 that range in size from $1 million to more companies in the firm’s third fund, a $1.2 million; Berwin Capital re-capitalised for than $1 billion, according to PEI Research billion 2000-vintage, were rolled into a $880 million; and the restructuring of & Analytics. new, $1 billion vehicle funded by CPPIB, Willis Stein & Partners’ 2001 vintage $1.8 Goldman Sachs and other investors. billion Fund III. CIP VI’s first deal was backing the March 2012 spin-out of Crédit Agricole Private Scarpa added the prospect of a $70.5 Equity, a European SME investor that billion pool of untapped business was an was renamed Omnes Capital. Other attractive opportunity for secondaries transactions have included the $1.03 Pantheon: buyers in the market but required high billion purchase of a Lloyds Banking restructurings levels of negotiations. Group portfolio and the backing of Barclays Africa spin-out Rockwood Private worth $70.5bn “General partner recaps could be a viable Equity. solution for ageing funds that have fatigued The global ’ LPs, GPs who are facing dwindling LPs in Fund VI include the California State figures show there are 200 management fees and portfolio companies Teachers’ Retirement System, Colorado funds over 10 years old that require additional capital to grow,” Public Employees’ Retirement Association said Scarpa. and Tyne and Wear in the with at least $100m of NAV. UK. “The key is structuring these transactions There are 200 decade-old funds with an so that the objectives of all these different aggregate of $70.5 billion in net asset constituencies are met.” value (NAV) according to fund-of-funds manager Pantheon. UK mulls $760m

The firm said the $70.5 billion figure fund interests sale spans , venture, mezzanine and Coller’s next distressed debt funds, growing to $86 Private equity stakes held billion across 870 funds ten years or older, fundraise expected by the Royal Mail’s pension if fund sizes were included below $100 this year fund could be sold off by million. the UK government. Coller’s $5.5bn Fund VI is Pantheon partner Rudy Scarpa said the Secondaries firms’ next big auction could $70.5 billion figure could rise due to the nearing the 75% invested threshold. be in the UK, where the government is large number of funds raised in 2006, weighing up the sale of $760 million- 2007 and 2008 and the length of time GPs worth of Royal Mail pension private take to exit their investments. Secondaries firm Coller Capital has deployed more than $3.5 billion – roughly equity interests. over two-thirds – of its $5.5 billion “As of March 2014, we’ve identified “The government’s objective is to exactly 200 private equity funds with Coller International Partners VI (CIP VI), Secondaries Investor has learned. realise the assets in a measured fashion at least $100 million of NAV that are within the context of protecting value at least ten years old, vintage 2003 or for the tax payer, while minimising older, spanning across buyout, venture, The fund is expected to hit the 75 percent deployed-mark halfway through this year, market distortion,” a spokeswoman for mezzanine, and distressed debt,” said the UK government’s Department for Scarpa. allowing the firm to begin raising Fund VII 3 NEWS COMPENDIUM 2014 Business, Innovation and Skills (BIS) RMPP has commitments of £35 million The firm was purchased by The Carlyle told Secondaries Investor, referencing to Hermes Private Equity Partners, a Group last November, at which time it had all of the assets previously transferred to 2003 vintage £300 million fund, and an a $2.6 billion portfolio and investments in the government. The BIS spokeswoman £87 million re-up to the £250 million 180 real estate funds worldwide. offered the caveat, however, that it may 2005 vintage Hermes Fund II. Both funds opt to hold less liquid assets for the longer concentrate on Western Europe, according Secondaries Investor recently reported term and “potentially to maturity where to PEI data. that Carlyle hired ex-Partners Group this protects value to the taxpayer”. executives Sarah Schwarzchild and David Lei to focus on its real estate secondaries In April 2012 the government removed at Metropolitan. the Royal Mail’s estimated £10 billion Metropolitan to pension deficit by transferring historic Real estate secondaries accounted for liabilities from the Royal Mail Pension target real estate roughly 2 percent of the $26 billion Plan (RMPP) to a new unfunded statutory Secondaries of secondaries deal volume last year, pension scheme, the Royal Mail Statutory according to a report from secondaries Pension Scheme. advisory firm Evercore. The Carlyle-owned As part of this intervention, around £28.6 real estate specialist is billion of the RMPP’s assets transferred to preparing to launch its the UK government. largest fund of funds National Bank of vehicle to date with a At the end of 2013 the UK government Greece seeks buyer said the book value of the remaining dedicated secondaries and assets was around £2.2 billion including co-investment side-car. for PE spin-out around £760 million in private equity partnerships. No private equity interests Metropolitan Real Estate Equity London-based NBGI have been sold to date. Management is preparing to launch a US Private Equity is the latest fund of funds with a $500 million sidecar bank spin-out expected RMPP invests in global private equity with for secondaries and co-investments, managers including Pantheon Ventures, according to two sources familiar with the to produce a structured Pathway Capital, Hermes Investment firm’s plans. secondaries deal. Management and Hamilton Lane, according to PEI data. It has an appetite The main fund is expected to be larger The National Bank of Greece (NBG) will for continued investment into global fund than the firm’s $359 million Metropolitan sell its private equity subsidiary NBGI of funds. Real Estate Fund V, a 2007 vintage fund Private Equity if it receives a bid of around that beat its $250 million target and is €300 million, a third of its original €900 In July 2013, the Pension Plan appointed now fully invested. Investors in that fund million value, according to two sources Bev Durston, former Head of Alternatives included a number of US limited partners, with knowledge of the process. at British Airways Pension Investment such as the Altman Foundation, the El Management, to help increase their level Paso Fireman & Police Pension Fund and Cogent Partners are advising NBGI of investments into private markets. the University of Vermont, according to Private Equity on the sale, which would RMPP said Durston would work part- PEI data. see the proposed buyer take the full NBGI time and would likely increase the Plan’s PE portfolio, similar to a direct secondary investments in private equity. Metropolitan’s been busy on the deal, said one source. fundraising front: last month, it disclosed As of March 2013, RMPP allocated 2.7 in a US regulatory filing it had raised Cogent declined to comment and NBG percent of total investments into private $11.25 million for its Metropolitan Real did not respond to requests for comment equity funds, including private debt, and Estate Partners International V fund. at press time. appointed Oaktree and ICG as investment managers for the private debt investments, Metropolitan declined to comment on Formed in 2000, NBGI Private Equity according to PEI Research & Analytics. fundraising. specialises in venture and

4 NEWS COMPENDIUM 2014 and buyout funds in Europe and North from 82 percent in 2012; it also found the wealth fund is ramping up America. amount of surveyed respondents targeting its secondaries capabilities, gross IRRs between 17.5 and 25 percent and said to be on the hunt In August 2013, co-founder of NGBI dropped to 62 percent last year from 79 for good fund restructuring Private Equity, Mark Owen, announced percent in 2012. opportunities. his intention to leave the company, with investment directors Robert Babington Tsai said that high pricing, the increase of The Abu Dhabi Investment Authority and Lawrence Deane covering Owen’s dedicated and non-dedicated buyers and (ADIA) has been “beefing up” its private role at the firm, according to PEI data. a willingness of auction participants to equity investment team over the past re-bid was making the market more biased year or so in order to target more NBGI raised three $100 million funds towards sellers. co-investments and secondaries deals, launched in 2008: NBGI Private Equity including the ability to sponsor fund France, NBGI Turkish Private Equity Fund “The two variables to price are your cost restructurings or spin-outs, according and NBGI Energy Fund, all of which are of capital, what you underwrite to, and to three sources with knowledge of the currently investing, according to PEI data. how aggressive or conservative you are in matter. projecting the cash flows, or forecasting,” Its most recent private equity fund, NBGI he said. “In years past, buyers have stated Professionals that have joined ADIA Private Equity II, raised $100 million in similar levels of targeted returns: holding during this time include Pascal Heberling, 2007, according to PEI data. the cost of capital constant but having a hired in February this year from Cinven more aggressive forecast on cash flows will as a senior portfolio manager for ADIA’s still result in higher prices being paid.” principal investments. UBS said the effect of high pricing was It also made a spate of high-level hires Buyers lower return turning dedicated secondaries buyers in 2012, when ADIA brought on Craig into selective sellers, causing buyers to expectations Nickels, former head of private markets accept most terms and conditions, and at the Washington University Investment is subsequently drawing an “influx of Several factors including Management Company, as head of US leverage providers into the market”. higher pricing lowered fund investments in the private equities department, along with former buyers’ targeted returns, In 2006-7, he said, there were only Private Equity chief operating officer according to a survey of really two main leverage providers Christophe Florin as head of emerging to secondaries buyers. “Today, that market participants by UBS. markets fund investments and Colm number has jumped to at least six active Lanigan, whose resume includes stints leverage providers,” he said. “It feels like Returns expectations have gotten lower, with CSFB, Caxton Iseman Capital the adoption of using leverage in the according to a survey recently conducted and the IFC, as co-head of PE principal secondary market is growing in order for by UBS’s secondaries advisory arm. investments. bidders to remain competitive.” “Over a third of our survey respondents The $627 billion sovereign wealth fund is UBS recently advised on the $1.2 billion stated they had lowered their targeted said to be positioning itself as a formidable UniCredit spin-out as well as the $1.1 buyout return hurdles in 2013 from the secondaries buyer and backer of synthetic billion sale of 24 fund interests from the prior year,” said Philip Tsai, UBS’ global spin-outs and fund restructurings – aiming Irish National Pensions Reserve Fund to head of secondaries market advisory to play a role similar to that of other large . activities. “For dedicated secondary institutional investors like the Canada buyers, we have seen targeted returns Pension Plan Investment Board, which has gravitating towards approximately a 1.5x been putting roughly $2 billion to work gross multiple and mid-teens gross IRR annually on the secondaries market often for buyout interests.” ADIA eyes fund via complex restructurings that blend primary and secondary investments. The survey found investors targeting gross restructurings multiples between 1.5x to 2x dropped to ADIA declined to comment. 70 percent of the 80 survey respondents The $627bn sovereign

5 NEWS COMPENDIUM 2014 The Abu Dhabi-based group has already notes the firm will assist with capital From 1999 to 2004 Boston was global been involved in several “complex” raising, secondaries transactions, and LP head of the private equity funds group at secondaries transactions, according to and GP advisory issues. Restructurings Citi, a role he also held when he re-joined one source who declined to name specific are expected to factor in, too, and Myers Merrill between 2004 and 2010. Merill’s funds. It was said to be actively pursuing noted global expansion was not far- private placement team later spun out restructuring opportunities at a recent fetched depending on clients’ needs. to become Mercury Capital Advisors, industry conference, according to another and Boston joined placement firm Eaton source. Hycroft will be “a multi-faceted Partners, which he subsequently left in firm catering to both July 2013. ADIA began investing in private equity LPs and GPs”, Myers told Secondaries in 1989 and has a target private equity Investor. “That was really the intention for Shattenkirk worked with Myers at allocation of between 2 percent and 8 Cogent 10 years ago, but what it became Cogent for nearly four years until 2007, percent, according to PEI data. was a secondaries advisory specialist, more when Shattenkirk joined Vestar Capital of a mono-line firm, rather than a broader Partners as managing director. He later It invests with fund managers globally, firm.” joined SecondCap Partners for a year as with a continued emphasis on buyout managing director, before leaving to help funds, but in recent years has been The four professionals now at Hycroft set up Hycroft. increasing its direct investment capabilities have together helped raise more than $65 as it moves toward reducing reliance on billion in capital for clients and advised Banta, meanwhile, comes from Greenhill (and fees paid to) external managers. on secondaries market transactions & Co, where he was a managing director representing more than $75 billion, for nearly five years. according to information on their LinkedIn profiles. Hycroft has also added a fifth managing director and has plans to recruit more Cogent founder “We’re starting off by assembling a team senior and junior staff in the coming launches new firm of very senior fundraising professionals, months. and Loren Boston is clearly a part of that,” Scott Myers has recruited Myers told Secondaries Investor. “I went out and recruited people that I knew very talent including private well and trusted.” placement veteran Loren Boston to New York-based Myers added: “These were people who I Register now Hycroft Advisors. always wanted to work with, and that time was now: it was a great time to recruit top for the latest Scott Myers, a founding member of talent.” secondaries broker and advisory firm Cogent Partners, has set up New York- Myers has more than 20 years’ experience secondaries headlines based Hycroft Advisors and brought on in private markets, beginning at Bain & fellow managing directors Loren Boston, Co. in 1994 as a management consultant. Neil Banta and Patrick Shattenkirk. He co-founded Cogent Partners in 2001 and expert analysis with Colin McGrady, Stephen Sloan, Hycroft registered with the Securities and Ian Charles, and Brian Mooney, and Exchange Commission in January 2013 stepped back into a senior advisory role and is expected to officially open in six to in 2011. He still owns a stake in Cogent eight weeks. and Hycroft will not compete with the Visit us at: secondaries broker. The firm is “dedicated to providing solutions to complex problems faced Boston is a long-time fundraiser for the SecondariesInvestor.com by general partners and institutional private equity industry, having over the investors worldwide”, according to past 30 years worked for groups including company information on LinkedIn that Bankers Trust, Citi and Merrill Lynch.

6 NEWS COMPENDIUM 2014 q&a

Catching up with CalPERS

Réal Desrochers, head of private equity for Réal the $277bn California Public Employees’ Retirement System (CalPERS), talks us Desrochers through the benchmark LP’s secondaries CalPERS strategy.

What is CalPERS’ current approach towards the secondaries market?

We’re actively hunting for funds from certain vintage years. CalP- ERS made a lot of commitments in 2006-2008, but then in 2009, 2010, 2011 we practically disappeared from the market, so we have a big hole in the portfolio. Why haven’t we seen you purchase anything yet? So you’re selling 2006-2008 positions and acquiring stakes from 2009-2011? We have not done any buying because it’s so pricey. We try to stay disciplined and as you know with auctions, the highest bidder usu- The portfolio sales we’ve already done – that was done a few years ally wins and we’re not typically the highest bidder. ago, before I came on-board in 2011. We were going to go on the market to sell another portfolio of fund interests, but I stopped the There’s so much money that’s been raised or being raised for process because I wanted us to better understand everything we secondary interests, that it’s really a seller’s market. There’s not a have before we decide to sell. And for the first time now we have a single week that goes by that people don’t call trying to buy some- really good fix on what we have in our portfolio. thing from us.

Now we’re looking to buy into funds that were raised in 2007, Unlike secondaries funds, we aren’t obligated to buy anything. If 2008, 2009 because obviously they have five-year investment you’ve raised a secondaries fund, your LPs are expecting you to periods and we’re trying to fill that hole I mentioned. At this mo- put that money to work and we think the market is pricey because ment in time, we’re actively looking at three potential secondaries of that. There’s a surplus of dollars looking to buy secondaries. transactions. Does CalPERS invest with secondaries People tend to think of CalPERS as a seller on fund managers? the secondaries market more so than a buyer; is It’s not logical for us for a number of reasons. One is that we have buying a new strategy? 389 managers, 745 funds in the portfolio – so we’re an index fund. My job is to reduce that number so we can really have an impact. No, we’ve been carrying the message for the last two years at least But when you invest in a secondaries fund, they buy secondary that we want to buy; but we want to buy specific vintage years fund interests but they also typically invest in some primaries as that will fit into our portfolio. And the ideal thing we’re looking part of their business model. That would be compounding our for is stakes from fund managers we already have in our portfolio. headache. We know our portfolio well and try to leverage the knowledge we have so it’s easier to price [secondaries fund interests].

7 NEWS COMPENDIUM 2014 q&a

Spinning out

Andrew Dewar, managing partner of Andrew Barclays Africa spin-out Rockwood Private Equity, talks us through his firm’s spin-out. Dewar Rockwood

How did Rockwood achieve its independence?

We were employed by Absa-Barclays, part of the Barclays group in South Africa. We got going in about 2006, and we bought a private equity portfolio with a view to following the Barclays UK model (where they ran a semi-captive fund under a management company and got a lot of external funding; Barclays made profits back off management fees and from capital involved with that fund). into exit mode so we’re looking at disposing of the portfolio, prob- ably over the next 3 to 5 years. Hopefully we’ll make a successful So we embarked on that pathway, the team was built, the portfolio exit. We’d like to be raising our next fund, Rockwood Private was built, and then in 2008 we started the process of the carve-out Equity Fund II; with Anthony as a partner, with Harbourvest and and then got caught in the financial crisis. So that was then put on Coller as partners, we can go forward and build a private equity ice for a while, and then we continued in this new fold in Absa and business. continued to manage the portfolio, but it’s been an imperative for Why bring in a new senior executive? Absa-Barclays to get out of private equity. Anthony was the founder, chairman and CEO at various stages of In 2011 they sold their [UK private equity] business which they’d his life of Brait Private Equity, which for a long time was the big- created, Equistone. We’d come quite close to carving out around gest private equity fund in its own right in South Africa. 2011, but then the exchange rate on the rand strengthened consid- erably and it just put the possibility of drawing foreign investment [Ball] had essentially moved out of private equity and he was into South Africa out of our reach. looking for a new private equity opportunity so he joined us as in- dependent chairman. He’s been a wonderful boost to our business What did you do? and opportunities to have somebody with that experience join us.

Last year we basically re-embarked on the process we left in 2011; What sort of back-office issues are you conditions were a lot more favourable. It took the best part of last encountering? year to consummate and to close up the process, with HarbourVest in the lead and Coller in the consortium. So the net outcome is Right now ... we’re sort of two months into it, and it is hard work that portfolio that we built, consisting of the five assets you will so far. Our primary focus is logistical carve-out, so moving to new have picked up in the press – Bravo, Safripol, Tsebo, EnviroServ, offices, establishing the whole IT infrastructure, contact database, Kwikspace – have effectively remained in our fund. all that type of thing. It’s very mundane stuff, but it’s taking a lot of time and effort, and it’s important to get right. As a team we acquired the management company we’d been em- ployed with, previously called Absa Capital Private Equity. In the It’s also about creating, branding, brand awareness, market posi- process [we] brought into the shareholding Anthony Ball. tion. We’ve had to do a bit of branding and we hope you like the name: Rockwood is the name of an indigenous South African tree. And so we now continue with the portfolio, we manage it; we’re

8 NEWS COMPENDIUM 2014 q&a

UBS on $45bn in dry powder

venture funds to include direct investments, tail-end portfo- Rodney Reid, UBS’ head of secondaries lios, hedge funds, and real estate portfolios. Partly a function of advisory for EMENA, discusses trends increased competition for typical buyout and venture portfolios, secondary buyers are actively exploring additional avenues to put shaping the market this year. their capital to work. Historically, inconsistent supply and target return misalignment prevented secondary buyers from deviating too far from buyout and venture portfolios; however, nowadays How would you characterise the secondaries with more consistent deal flow, fund types like infrastructure and market at the start of 2014? fund of funds are attracting more attention from secondary buyers. For these deals types of deals, many secondary buyers are using Despite a sluggish start to 2013, last year finished on a very posi- separate accounts, and some buyers have gone so far as to raise tive note with several large and prominent transactions getting dedicated funds to mitigate any return misalignment. General done. Our sense is that the strength of the second half of 2013 partners are also taking advantage of the widening breath of the seems to have carried over into 2014. No doubt a contributing secondary market to generate liquidity for their LPs. factor to 2014’s good start is the significant amount of dry powder available for deals. Our estimation at the beginning of 2013 was Based on the 2014 UBS Secondary Market Buyer Survey, we esti- that there was approximately $43 billion of dry powder available mate approximately 30 percent of secondary buyers participated among the dedicated secondaries buyers, but going into 2014 that in general partner-led portfolio liquidity solutions in 2013, for figure had risen to over $45 billion. When you add in the many which nearly $3 billion of net asset value was acquired. In addition, non-dedicated groups, such as sovereign wealth funds, who op- well-regarded general partners are even turning to the secondaries portunistically look at buying, the amount of potential dry powder market to access capital in the form of staples that can kick-start or available is quite substantial. All that capital chasing a finite number top-up a traditional primary fundraise. of deals creates interesting supply and demand dynamics.

So what is the investor appetite for secondaries? How do you see the secondaries market developing this year? I would say investor appetite for secondaries continues to be robust, as evidence by the fundraising success of several large sec- I do not anticipate the high level of competition in the secondar- ondary buyers. There are over 30 secondary buyers seeking to raise ies market to abate in the near term, so I would expect buyers to around $25 billion in 2014. The rapidity with which some second- continue their search for less competitive situations to invest in. It aries funds have been able to raise capital is stunning; however, I would not surprise me to see a continued increase in the alterna- have been equally impressed by the persistent interest shown by tive asset classes; infrastructure, hedge fund, real estate, and GP- traditional LPs in acquiring secondaries themselves. led transactions. Secondaries buyers are also casting a wider net to fish for credit, intellectual property, healthcare royalties, and other LPs, who might have historically only invested through second- sorts of illiquid assets. aries players, are increasingly choosing to acquire secondaries directly, which is adding to the overall level of competition. With This year I expect more sellers to take advantage of the attractive the increased competition, it is no surprise that secondary buyers’ market conditions to optimize their existing portfolios. With in- success rate declined by roughly one third in 2013. creasing sellers selectively pruning their non-core GP relationships there could be an increase in the number of secondaries transac- How widespread are secondaries? tions but also a decline in average deal sizes.

The scope of secondary buyers has extended beyond buyout and

9 NEWS COMPENDIUM 2014 q&a

The private (equity) life of banks

Coller Capital chief executive officer Tim Tim Jones Jones explains the cycles of regulation that could lead to banks re-joining the buy-side. Coller Capital Bank spin-outs and restructurings have be- come part and parcel of the secondaries mar- ket. Could we get to the point where regulato- ry issues might recede and we could see banks taking up private equity again?

Banks are very cyclical animals and they like private equity. European example, banks are able to get an extension to the exit timetable in certain banks, in particular, are keen on private equity because they are structured circumstances – but what Volcker is really saying is: this is an area we don’t more as universal banks. They don’t have the kind of regulatory restric- think you should be in. And I think that’s the conclusion most bank CEOs tions that exist in America which have prohibited some of the principal and chairmen have reached: they don’t want to be in this particular activ- banks from investing in private equity for a long time. As a consequence, ity at this particular time. That makes sense when banks’ main priority is lots of banks across Europe, large and small, have dabbled in private eq- to rebuild their core businesses and their balance sheets. uity. They like the additional income it brings in, especially in bull market years. And rebuild trust with the public?

At this moment in time, the global banking system is still under a lot of Rebuild trust right across society, yes. That’s a major occupation of bank stress – both regulatory and capital stress – because of the fallout from the boards today. And works needs to be done, too, on the confidence of the financial crisis. In Europe, the pain is far greater than in the US, because capital markets. The public markets don’t understand private equity. If in- a lot of the restructuring needed in Europe’s banking system has not vestors see volatility around a private equity business, it creates downside happened yet, whereas it’s been quite fast and deep in the US and UK. not upside in the share price. There’s no share price premium for being There are still a lot of private equity assets, and private equity-like assets, in private equity – only downside risk. That’s exactly why Deutsche Bank on bank balance sheets on the Continent, and they’re spread far and wide. and JPMorgan were big sellers in 2001 – of probably over $10 billion of There’s still a lot of work to be done there. assets between them – because there was no fit anymore. Then, during the financial crisis obviously, both of them bought banks and ended up In the US, by contrast, things are more concentrated. Banks with private loaded with private equity again. Everything goes in cycles. There will be equity have numerous factors to contend with: the Volcker Rule, which a point in time when banks say: We need strong revenue streams, and you very severely limits banks’ exposure to private equity; the international can’t make that much income out of mortgages, plus lending to SMEs, Basel III regulations, which make capital more expensive for assets like mid-market corporates and the Ford motor company. At that point they private equity; and the leverage ratio rule now being implemented in the may well end up back in private equity. Someone will write a business US, which says banks can only have so much leverage on the balance sheet plan – the strategy will be different from today’s – but it will get them as an absolute. You have a whole series of rules going through that are back into private equity in some form or other – probably via their asset making banks refocus on their core businesses; they are having to make big management businesses. decisions about what assets they want to carry and where they’re going to earn income. The mantra around the banking system at the moment is ‘Go What about regulation? simple’. And if you do that – if you go back to what a commercial bank once was – you end up with a deeper but narrower institution: a ‘plain It’s key, of course. Regulators are clear that banks are a hugely important vanilla’ client-servicing platform and M&A house, not a prop trading part of the global economy. They must be safe, and they must take far less business. risk onto their balance sheets than they have done historically. And because we don’t trust banks wholly to do this, we’re going to enforce it through So that makes it difficult for banks and private equity? regulation. In retrospect, it’s interesting to remember the soft touch ap- proach we used to have: British banks would receive ‘guidance’ from the Yes, because private equity has nowhere to sit. There’s no rationale for a Bank of England. Those days are gone, of course. Guidance has had to be- bank to pursue it as a strategy, given all the negatives I’ve mentioned. So come rules because the level of trust in the banking system is low. Regula- the trend right across the banking system is to exit this thing called private tors want banks to follow a set of rules – and they want them to follow the equity – which is what we are seeing now. It’s easy to get fixated on the spirit as well as the letter of the rules. In my view, that essentially means detail, but it’s really the big picture that counts. With the Volcker Rule, for getting back to what a bank basically is.

10 NEWS COMPENDIUM 2014 by$25.0 the numbers 35 $22.9 $22.0 $21.7 $25.0 3035 29 $20.0 $22.927 $25.0 $22.0 26 $21.7 35 2530 29 $22.9 Collecting capital $20.0 27 21 $22.0 26 $21.722 $15.0 30 29 2025 Fundraising has been on the rise $20.0 27 26 19 21 22 again for secondaries-focused $15.0 $10.7 25 $10.3 1520 funds across asset classes: $10.0 21 19 22 $15.0 $7.8 $3.3 Source: PEI Research & Analytics $10.7 20 $10.3 1015

Aggregate Capital Raised ($bn) Raised Capital Aggregate $10.0 19 $5.0 $7.8 $10.7 $3.3 $10.3 5 15 $10.0 510

Aggregate Capital Raised ($bn) Raised Capital Aggregate $1.9 $1.2 $5.0 $1.0$7.8 $0.8 $0.9 $0.8 $3.3 $0.3 $0.3 $0.2 $0.2 10 $0.0 5 05 Aggregate Capital Raised ($bn) Raised Capital Aggregate 2008 2009 2010$1.9 2011 2012 2013 Q1 2014 $5.0 $1.2 $1.0 $0.8 $0.9 $0.8 $0.3 $0.3 $0.2 5$0.2 5 $0.0Infrastructure Private Equity Private Real Estate Funds closed 0 $1.9 $1.2 $1.02008 2009 2010 2011 $0.82012 $0.92013$0.8 Q1 2014 $0.3 $0.3 $0.2 $0.2 0 $0.0Infrastructure Private Equity Private Real Estate Funds closed 2008 2009 2010 2011 2012 2013 Q1 2014

Infrastructure Private Equity Private Real Estate Funds closed $35 45 No. Secondaries Funds of in Market 40 $30 40 35 $35$25 45 30 No. Secondaries Funds of in Market Real estate on the rise 40 40 $30$20 $33.2 25 $35 45

35 No. Secondaries Funds of in Market $25$15 40 20 Six real estate-focused secondaries funds $30 3040 15 are currently in fundraising mode. $20$10 $33.2 2535 $25 10 6 30 Average Target Size ($bn) Target Average $15$5 20 $20 5 Source: PEI Research & Analytics 0 $0 $33.2 $3.2 1525 $10$0 0 $15 Infrastructure Private Equity Private Real Estate 1020 6 Average Target Size ($bn) Target Average $5 15 $10 5 Aggregate0 $0 Target Size ($bn) No. of Funds$3.2 in Market $0 10 6 0 Average Target Size ($bn) Target Average $5 Infrastructure Private Equity Private Real Estate 5 0 $0 $3.2 $0 0 Aggregate Target Size ($bn) No. of Funds in Market Infrastructure Private Equity Private Real Estate

Aggregate Target Size ($bn) No. of Funds in Market

$35 45 Going global

$29.3 40 No. Secondaries Funds of in Market $30 20 35 Regardless of asset class, most $35$25 45 30 secondaries funds being raised are

$29.3 40 No. Secondaries Funds of in Market $30$20 global in investment scope. $35 13 20 2545 35

$25 $29.3 2040 No. Secondaries Funds of in Market $30$15 Source: PEI Research & Analytics 20 30 1535 $25$20$10 13 8 25

Average Target Size ($bn) Target Average 1030 $15$5 $3.3 5 20 $20 13 $2.8 525 $1.1 15 $0 8 0 $0 $15$10 020 Americas Asia-Pacific Europe Global Middle East / Average Target Size ($bn) Target Average 10 $5 $3.3 5 Africa 15 $10 $2.88 5 Aggregate $1.1Target Size ($bn) No. of Funds in Market

Average Target Size ($bn) Target Average 10 $0 0 $0 $5 $3.3 5 0 Americas Asia-Pacific Europe$2.8 Global Middle East / 5 $1.1 0Africa$0 $0 0 Aggregate Target Size ($bn) No. of Funds in Market Americas Asia-Pacific Europe Global Middle East / NEWS COMPENDIUM 2014 Africa 11 Aggregate Target Size ($bn) No. of Funds in Market funds in market

GLOBAL FUNDS

FIRM FUND HEADQUARTERS ASSET CLASS TARGET (M)

Altamar Private Equity Altamar VII Spain Private Equity €300

Arcano Asset Management Arcano Secondary Fund II Spain Private Equity $400

Ardian AXA Secondary Fund VI France Private Equity $4,000

Auldbrass Partners Auldbrass Partners Secondary Opportunity Fund United States Private Equity N/A

Blackstone Strategic Partners Strategic Partners Fund VI United States Private Equity $4,000

Capital Dynamics Capital Dynamics Global Secondaries IV Switzerland Private Equity $350

DB Private Equity DB Secondary Opportunities Fund III United Kingdom Private Equity $1,000

JP Morgan Asset Management JP Morgan Seondary Private Equity Investors II United States Private Equity N/A

Lagoon Capital Lagoon Capital Secondaries Fund I United Arab Emirates Private Equity $150

Landmark Partners Landmark Equity Partners XV United States Private Equity $2,500

Landmark Partners Landmark Real Estate Partners VII United States Private Real Estate $1,000

Lexington Partners Lexington Capital Partners VIII United States Private Equity $8,000

Morgan Stanley Alternative Investment Partners AIP Phoenix Global Real Estate Secondaries Fund II 2013 United States Private Real Estate $500

NB Alternatives NB Crossroads Fund XX United States Private Equity $750

Northleaf Capital Partners Northlead Secondary Partners Canada Private Equity $200

Pantheon Ventures Pantheon Global Seondary Fund V United Kingdom Private Equity $3,000

Partners Group Partners Group Real Estate Secondary 2013 Switzerland Private Real Estate $1,000

PineBridge Investments Pinebridge Secondary Partners III United States Private Equity $500

Pohjola Property Management Real Estate Debt and Secondaries Ky (REDS) Finland Private Real Estate €150

Pormona Capital Pomona Capital VIII United States Private Equity $1,300

GLOBAL FUNDS SUBTOTAL $29,273

AMERICAS FUNDS

FIRM FUND HEADQUARTERS ASSET CLASS TARGET (M)

Akkadian Ventures Akkadian Ventures III United States Private Equity $35

Allegis Capital Allegis Special Opportunities Fund United States Private Equity $50

Belveron Real Estate Partners Belveron Partners Fund II United States Private Real Estate $40

FGI Worldwide FGI Opportunity Fund II United States Private Equity $50

Fort Washington Capital Partners Fort Washing Private Equity Opportunities Fund III United States Private Equity $150

Greenspring Associates Greenspring Secondaries Fund I United States Private Equity $100

Lexington Partners Lexington Middle Market Investors III United States Private Equity $750

Montauk TriGuard Montauk TriGuard VI United States Private Equity $400

Origami Capital Partners Origami Secondary Fund II United States Private Equity $1,000

Private Equity Investors, Inc Private Equity Investment Fund VI United States Private Equity $250

Saints Capital Saints Capital VII United States Private Equity $300

Second Alpha Partners Second Alpha Partners II United States Private Equity N/A

Stratim Capital Stratim Capital III United States Private Equity $150 AMERICAS FUNDS SUBTOTAL $3,275

12 NEWS COMPENDIUM 2014 funds in market

EUROPE FUNDS

FIRM FUND HEADQUARTERS ASSET CLASS TARGET (M)

Aberdeen Asset Management Aberdeen European Secondaries Real Estate United Kingdom Private Real Estate €300

ACG Private Equity ACG Europe VIII France Private Equity €250

BVT Unternehmensgruppe BVT-CAM Private Equity Global Fund IX Germany Private Equity N/A

Committed Advisors SAS Committed Advisors Secondary Fund II France Private Equity €400

Fondinvest Capital Fondinvest IX France Private Equity €400

Idinvest Partners Idinvest Secondary Fund France Private Equity €200

Keyhaven Capital Keyhaven Seoncaries Fund United Kingdom Private Equity €150

Unigestion Unigestion Secondary Opportunity Fund III Switzerland Private Equity €300

EUROPE FUNDS SUBTOTAL $2,768

ASIA PACIFIC FUNDS

FIRM FUND HEADQUARTERS ASSET CLASS TARGET (M)

ANT Global Partners Japan Fund IV Singapore Private Equity ¥20,000

ANT Global Partners Ant Bridge Asia No.5 Private Equity Secondary Investment Fund Singapore Private Equity $150

NewQuest Capital Partners NewQuest Asia Fund II Hong Kong Private Equity $330

STIC Investments STIC Secondary Fund III South Korea Private Equity KRW300,000

WM Partners WM Partners Fund I (JSPF No. 3) Japan Private Equity ¥10,000 ASIA PACIFIC FUNDS SUBTOTAL $1,062

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13 NEWS COMPENDIUM 2014 www.secondariesinvestor.com

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