Secondaries market a buyers’ haven says global private equity specialist
Tidal wave of private equity supply means bargain prices – for managers in the know
SYDNEY, 30 April 2009 - The global recession and unprecedented market turmoil is uncovering new and exciting opportunities in the private equity sector, according to leading global private equity specialist Pantheon Ventures. However, it’s buyer beware for investors who need to employ the right skills to pick the gems from the market rubble.
Visiting Australian institutional investors this week, Sally Collier, Partner at London-based Pantheon Ventures (Russell Investments’ private equity business), said some of the best private equity investments can be made in recessionary years, in both the primary and secondary arena.
Given the return variability of private equity is significantly greater than that of public markets, there is more of a premium on getting investments right, Ms Collier said, particularly in times of high volatility.
“The skill lies in assessing which of the thousands of private equity mangers across the world are best positioned to take advantage of the market dislocation and provide the best returns to investors. In recent years, investors have focused solely on returns and not necessarily on how much risk was associated with that return. Now, investors have much greater focus on both risk and return. Managers, such as Pantheon, with disciplined investment processes and experience of investing through cycles are well positioned to select the best managers,” she said.
Ms Collier also highlighted the opportunity in the secondary market for private equity interests: “There is currently an estimated US$100 billion gap between the funds available to invest in secondaries and the tidal wave of supply. Investors in secondaries can take advantage of this market imbalance as well as the ability to reprice assets. This provides great opportunities for Australian institutional investors.”
The private equity secondary market (also called secondaries) refers to the buying and selling of pre-existing investor commitments to private equity. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds. There is now a robust and maturing secondary market available for the sellers of private equity assets.
A pioneer in the secondary market, Pantheon has provided tailored liquidity solutions to private equity investors since 1988. In an increasingly sophisticated market, Pantheon uses innovative strategies and its broad knowledge of secondary markets to meet the needs of vendors. With more than 25 years in the market, the Pantheon team often has additional information on assets for sale in the secondary market due to its position as an existing investor in the fund, investment in a portfolio company through another fund, or previous contact with a manager.
Long relationships do best
Ms Collier said a private equity manager’s time in the market was critical in terms of its ability to deliver the best deals to investors.
“Private equity is not an asset class to speed date in; selecting a private equity manager should be viewed as a long term relationship. You need a seasoned and truly global manager who’s seen through investment cycles and who can deliver consistent results,” Ms Collier said.
Pantheon applies both top-down and bottom up analysis within its investment vehicles to maintain performance and manage risk. Top-down analysis includes research on the overall economy, industry sectors, and the different segments of private equity, such as venture capital markets or distressed securities, while bottom-up analysis on managers includes analysis on the managers’ strategy; team; past investments and ability to sustain performance over time.
About Pantheon Ventures Ltd:
Pantheon has been active in private equity since 1982 and is one of the world's leading private equity fund-of-funds and secondaries managers, with US$23.1 billion under management (as of 31 December, 2008), a global team of 151 including 68 investment professionals, and offices in London, San Francisco, New York and Hong Kong. It develops and implements private equity investment strategies for over 300 global institutional investors; it manages regional funds-of-funds in the US, Europe and Asia, customised separate account programmes and global secondary funds. Pantheon also acts as manager to Pantheon International Participations PLC ("PIP"), the world's first quoted private equity fund-of-funds, launched in 1987 and listed on the London Stock Exchange. Pantheon has been part of Russell Investments since March 1 2004. For more information, go to www.pantheonventures.com.
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 and Pantheon Ventures Limited ("Pantheon"). Any financial products referred to in this document are only available to wholesale investors within the meaning of section 761G of the Corporations Act 2001 (“Wholesale Investors”). Hence, any advice or information contained in this document is delivered to you in your capacity as a Wholesale Investor and in no other capacity. Pantheon is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in relation to the provision of financial product advice to Wholesale Investors. Pantheon Ventures Limited is a body that is regulated by the Financial Services Authority under the laws of the United Kingdom, which differ from Australian laws.