GUIDE TO THE SECONDARY MARKET 2014 Edition Sponsored by: Cogent Partners-Print Ad Redesign-R5-PRINT.pdf 1 3/27/14 5:02 PM C M Y CM MY CY CMY K GUIDE TO THE SECONDARY MARKET 2014 Edition Editorial Laura Kreutzer, David Smagalla, Hillary Canada, Yuliya Chernova, Sonja Cheung, Alec Macfarlane, Michael Wursthorn Research Victoria Camporeale Bradley, Sean Curran Advertising Joseph Koskuba, James Lindquist Production and Design Tara S. Cooper, Heather Graham, Tim White Editorial Director Nicholas Elliott Tel 609.520.7779 or 800.291.1800 | Dowjones.com/privatemarkets ISBN# 1-934391-18-2/978-1-934391-18-1 | Guide to the Secondary Market published May 2014 by Dow Jones & Company, Inc., located at 1211 Avenue of the Americas, New York , New York 10036. Dow Jones & Co. is a News Corporation company. Cover Price: $195. Contact [email protected]. Copyright © 2014 by Dow Jones & Company, Inc. All rights reserved. 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Introduction Preface 4 By Laura Kreutzer, Assistant Managing Editor, Private Equity Large Portfolio Sales Put Secondary Market Back on Track 6 By Michael Wursthorn Secondary Market Timeline 16 Fundraising and Deal Volume, 2001-2013 Secondary Market Posts Big Year in 2013, but Exactly How Big? 18 By Laura Kreutzer and Michael Wursthorn Strong Pricing Drives Some Buyers Further Out on the Risk Spectrum 20 By Laura Kreutzer Fund Recaps Gather Steam Despite Challenges 25 By Michael Wursthorn More LPs Seek Secondary Deals, but Can They Fly Solo? 28 By Hillary Canada Secondary Buyers Bet Slow Growth in Asia Will Drive More Deals 30 By Sonja Cheung The Rise and Fall of Paul Capital 31 By Alec Macfarlane Nasdaq Takes Aim at Secondaries Market 33 By Yuliya Chernova Secondaries Reap Rewards of Boom Era Deals 34 By David Smagalla II. Sponsored Articles GP-Led Fund Restructurings and Recapitalizations: A Growing Market Solution 36 By Brian Mooney of Cogent Partners Discount to Net Asset Value: A Key Factor to Producing High Returns? 37 By Charles Soulignac of Fondinvest Capital 2014 Secondary Market Valuation Trends and Outlook Highlights for Private Funds and Companies World-Wide 39 NYPPEX Holdings LLC III. Firm Listings Secondary Market Buyer Listings 40 Secondary Direct Manager Listings 63 Intermediary Firm Listings 67 IV. Appendixes A. Investors That Have Backed Secondary Funds 75 B. Secondary Market Buyer: Interests Sought 78 C. Secondary Market Buyer & Direct Manager: Geographic Preferences 80 D. Secondary Market Direct Manager: Industry Preferences 82 E. Secondary Market Intermediary: Types of Clients Represented 83 F. Secondary Market Intermediary: Average Size of Deals Represented 84 V. Indexes Company Name 85 Contact Name 88 4 | | GUIDE TO THE SECONDARY MARKET Preface this report back in 2007, the secondary market was coming of age When we published as more institutional investors turned to secondary deals as a portfolio management tool, finally shedding the stigma that had often been attached to such sales. At that time, pricing for secondary deals had reached aggressive levels, in some cases exceeding 100% of a portfolio’s net asset value. Meanwhile, third-party debt also had made its way into the secondary market, raising questions about the level of risk secondary firms had assumed. Finally, stapled secondary deals, in which the buyer provides fresh capital for a new fund as part of the deal, also had become a more common component of transaction structures. Fast forward to 2014 and the secondary market has more than doubled in size since those days, both in transaction volume and in annual fundraising. Yet many of the issues that characterized the market back in 2007 appear to have resurfaced, according to our latest survey of secondary buyers. Once again, pricing has approached, if not exceeded, the net asset value for certain assets, prompting the highest percentage of buyers calling this a seller’s market since 2007. At the same time, third-party debt and stapled secondary transactions have re-emerged more commonly in deal structures. In this edition of the Dow Jones Guide to the Secondary Market, we examine how secondary buyers are positioning themselves in today’s competitive market and where they see the greatest potential for deal flow growth. We also look at the growing trend of fund recapitalizations and the complexities associated with such deals. Of course, you’ll also find the usual array of profiles of buyers and intermediaries, along with the fundraising, performance and deal volume statistics that have always characterized these guides. We hope you find this guide useful and, as always, welcome your feedback on how we can improve future editions. Sincerely, Laura Kreutzer Assistant Managing Editor, Private Equity Dow Jones & Co. [email protected] @LauraKreutzer Leading the way in secondary investing LGT Capital Partners is a leading private equity fund of funds manager and secondary specialist with over USD 22 billion in commitments and is acquiring private equity interests actively and discretely. LGT Capital Partners provides portfolio management and liquidity solutions since 1997 and leads secondary investments in: Buyout and Venture Capital partnerships European, US and Asian assets Special situations (unfunded positions, direct secondaries) For further information please contact André Aubert ([email protected]) or Sascha Gruber ([email protected]) LGT Capital Partners LGT Capital Partners SecondariesSecondaries House House of of the the Year Year 2013 2012 Pfaeffikon | New York | Dublin | London | Dubai | Beijing | Hong Kong | Tokyo [email protected] | www.lgtcp.com Pfaeffikon, New York, Dublin, London, Dubai, Beijing, Hong Kong, Tokyo www.lgtcp.com, [email protected] 6 | | GUIDE TO THE SECONDARY MARKET Large Portfolio Sales Put Secondary Market Back on Track By MICHAEL WURSTHORN What Percentage of Secondary Deals You Do Is Due to: start to 2013, the After a sluggish 40% 40% secondary market has 40% regained lost ground as a surge in big portfolio sales and a smattering of fund restructurings have put 2014 on pace to be one of the industry’s strongest years yet. 30 29% 25% 24% “The first half of last year was slow. But this year started off 22% 20% very strong,” said Tim Jones, chief executive of secondary 20 18% firm Coller Capital. “There’s two drivers behind it: Pricing has reached [net asset value] for sellers – so why not bring a book to market? – and there’s a strong desire for investors 10 9% 9% to reshape, rationalize and restructure their fund books.” 0 Strong stock market performance as well as a Economic Regulatory Their use as GP Other steady flow of distributions from private equity portfolios, concerns of changes a portfolio recapitalizations regulatory pressure and an ongoing desire among inexperienced management (or fund investors/distressed tool restructurings) investors to reduce the number of general partner relationships in their portfolios have all helped bring Mean Median more portfolios to market. Source: Guide to the Secondary Market, 2014 edition Many buyers remain confident the good times will continue at least through the rest of this year, according to the Strong pricing has also helped encourage limited partners results of the latest Dow Jones survey of secondary to clean up their portfolios. More investors have at least buyers. About two-thirds of secondary buyers surveyed put feelers out on fund portfolios to see whether buyers said they expect 2014 to be a record year for volume, an will pay close, or even above, net asset value for the increase from last year, when just over half of respondents portfolios on offer. expected 2013 to finish on a strong note. The survey reflected responses from 58 secondary buyers, including “Why not look to sell a portfolio if you can get close to many of the industry’s largest players. NAV?” Mr. Jones said. As in the 2013 survey, portfolio management remains the For example, Boston-based fund-of-funds manager biggest driver of deal volume, according to the survey. HarbourVest Partners may sell two separate private equity Portfolio management needs accounted for about 40% of portfolios, one valued at roughly $400 million and another secondary deals among respondents to this year’s survey, at around $100 million, according to people familiar with making it the biggest motivator of deal volume. the deal. The firm hopes to take advantage of the generous pricing conditions in the market, those people said, adding that it’s an “opportunistic” process. Do You Expect This Year to Be a Record Year Volcker Clock Ticks Down for Secondary Deal Volume? Regulatory pressure also continues to fuel deal flow after U.S. lawmakers finalized guidance on the Volcker rule, which limits the percentage of riskier assets, such as private equity and hedge funds, that financial institutions 34% Yes can carry on their balance sheets. 47% No 66% 53% Survey participants said regulatory changes drove an average of 29% of their deal flow as U.S.