Where is there untapped value in secondaries?
Secondaries is a cool area but I feel like most of the sub-strategies are pretty much fully exhausted and there is a lot of competition. Beyond the below areas, where is there really room to generate alpha and do something different?
-Large Cap LP secondaries: Ardian
-Large Cap Diversified: Strategic Partners, Coller, Goldman
-Small Cap LP secondaries: Apogem, RCP
-Large Cap GP-led: ICG, Morgan Stanley
-Small Cap GP-led: TimberBay
-Tail-end LP secondaries: Hollyport
-Small purchases LP secondaries: Willowridge, Kline Hill
-VC: Industry Ventures, Stepstone (Greenspring)
-Secondary Direct: W Capital, and then a host of very small players
-NAV Lending and Pref: Crestline, Whitehorse, Hark, 17Capital
-Distressed: Banner Ridge
-LP Credit Secondaries: Coller, Pantheon, Tikehau
-FoFs: Bex
-Buying other secondary funds stakes (lol): Montauk Triguard
-then there are some specialist Asia and Euro buyers
What else is there?
Surprised you didn't mention HarbourVest, Hamilton Lane, Adams Streets, Apollo, or Blackstone's secondary practice.
I mentioned Blackstone - they're known as strategic partners.
I view Hamilton Lane and HarbourVest in the same camp as Blackstone - large market diversified across LP-led and GP-led.
Adams Street is a mid market LP shop that only buys assets where they have made primary commitments.
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I think the next step for Secondaries is more single-asset or concentrated portfolio strategies, with an increasing amount of industry specialization by the secondaries funds themselves. Similar to what played out in the broader PE market. Being able to underwrite more crisply and conduct specialized diligence is going to be a big differentiator.
Likely this^… market will bifurcate into the traditional generalists where there is still value in being a large scale passive allocator (consistent PE index like returns) and then direct players that have industry specialization.
I don’t see the direct guys displacing the traditional secondary players though… have seen multiple occasions already where a GP has received inbounds from direct players to participate in a CV but they opted to leave room for passive LPs that can some day commit primary capital.
Impact secondaries . There are one or two firms practicing this.
Tbh I think both of those groups (commonfund and northsky are total BS green washers).
Northsky bought a bunch of shares in DocuSign and called it ESG because it's a software alternative to cutting down trees for paper, like come on....
Commonfund buys all the small dregs LP stakes that no one wants and then sprinkles some clean tech funds in there and calls it impact
Commonfund is trash
After taco bell when you proceed to the toilet and take a massive dump there are usually shit particles stuck to the toilet - those shit particles are commonfund
I’m not in secondaries, so take my opinions with a grain of salt.
Micro LMM seems untapped. According to secondary bankers I’ve chatted with, LMM deals still need to be at $100M+ EV to get done. So, that would imply <$100M EV secondaries space is untapped.
Lastly, and as previously mentioned, specialized industry secondaries seems untapped and personally where I have the most fascination. I suppose infrastructure secondaries is an example of a pre existing market. I think it’d be super valuable to have a secondary fund dedicated to an industry or a theme, like multi-site healthcare services or pet care (the latter being a theme, which could incorporate vet clinics, pet food, pet toys, pet medical devices, etc.).
That's way off. Lots of shops doing LMM GP-led like Kline Hill and Schroders
I should’ve specified, GP-led / single asset continuation. Heard it from two different banks that came into my fund’s office.
Think the comment was more noting the lack of intermediation results in proprietary deal flow… I do wonder how performance for some of these players will trend as their fund sizes scale.
Not in secondaries, yet. But I think Venture still has the most green space. Even if you assume this valuation number is high there is apparently 1.1 trillion of NAV trapped in funds with a 2016 or older vintage…
The issue with VC is that there are thousands of VC funds but only a handful that you actually want to end up buying into as a secondary. So many of these funds absolutely fail and don't invest in companies that survive. With buyout stage assets you can go a lot more niche and hairy due to their ability to cashflow and exit. This is why the few VC secondaries funds out there are all competing to buy Sequoia, NEA, Lightspeed, etc...they're not bargain hunting for a no name fund. Also VC is about information asymmetry - this is why a lot of them have a FoF arm so they can gain an edge from their primary relationships and can approach sellers without needing them to breach NDA by sharing reporting.
I think offering secondary/minority equity that is not VC-esque to LMM businesses sub ~$150m - $200m in rev is really interesting.
I have a few friends with cofounders they want to buy out, but they don't want to lever the business and want a partner...but do not want to sell control of the co, and really they shouldn't because they've done an amazing job of running the business. They are doing anywhere from $30m - $250m in rev. Their only option is PE because they aren't a fit for VC, and PE wants control...
Have been thinking about raising ~$15m - $25m to do this or even doing it as an IS. The deal flow is there which is the hard part I suppose.
You sound like that kid from Kline Hill that got canned lol
Why’d he get canned
Some newer/less crowded areas:
- Venture / growth secondaries
- Tailend secondaries (Kline Hill like)
- NAV finance or NAV lending
- Credit secondaries
- Some GP stakes subareas - GP notes/debt (Insurance co’s, Dyal Credit), lower end of the market focused GP stakes
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