We are now mid-way through 2023, so we caught up with Head of Secondary Investments Tom Kerr to gain his perspective on the current secondary market environment.
What is happening in the LP and GP-led markets?
One area that's probably evolved the most in our view is the deal landscape. At the end of last year we saw a lot of LPs coming to market, looking to sell, solving those liquidity issues and willing to take discounts. On the GP-led side, while that is a very big part of the market, it felt like maybe it lost some momentum last year.
Secondary Market Volume
For those of us that have been around the market for a long period of time, GP-led deals are not new. They are an evolving phenomenon and a tool within the secondary landscape to restructure funds and assets that are healthy. Historically, solving issues within funds and creating optionality within funds that were broken or had troubled assets is now part of the foundational layer of secondary markets overall. In the latter half of the last decade, we saw more GPs becoming creative around liquidity solutions and the secondary market embracing that. In 2020 and 2021 it very much became a widespread activity where GPs were recapitalizing assets, keeping assets for themselves, resetting economics and creating more optionality for LPs – but also opportunistically looking to create more value both for themselves and for LPs through this activity.
I think where we're transitioning now and what’s very exciting about this market is there's a wide acceptance of the activity by GPs and LPs. There certainly are some concerns around some of that, but it feels like it's becoming much more fluid. I think GPs are now looking at this, not as much opportunistically, but as more of a solutions provider, much more event-driven, much more situation-specific around creating optionality to solve perhaps a challenge that exists today or a challenge that might exist going forward.
For example, you have a portfolio of assets and you're out of your investment period or close to out of your investment period. Perhaps your unfunded level of commitments is not sufficient to meet the potential demand for unfunded follow-ons that you need. Perhaps you are looking to the debt markets to continue to execute your M&A strategy and now that capital is much more expensive. The secondary market may be able to come in and offer a solution to provide incremental capital to help recapitalize those businesses, to help to provide more unfunded for whatever needs there may be for that portfolio. The valuation at which that is done is less important relative to the overall capital availability. I think that is where this market is trending. It's moving away from highly opportunistic recapitalization to a more event-driven, situation-specific solution, and we think that's pretty interesting.
On the LP side, I think there is a tremendous amount of NAV in these portfolios. I think LPs would like more flexibility. I think the urgency to sell has been dampened by the public markets overall increasing as well as the fundraising markets really being slow. GPs are taking longer to raise their funds, extending their funds and giving LPs more time to do so. That urgency, the catalyst for that wave of supply to come and actually transact has continued to get kicked down the road a bit, but it feels like we're getting closer to that hitting its equilibrium and seeing that level of activity increase pretty meaningfully.
There are a number of factors that can affect the private markets which can have a substantial impact on the results included in this analysis. There is no guarantee that this analysis will accurately reflect actual results which may differ materially. These valuations do not necessarily reflect current values in light of market disruptions and volatility experienced in the fourth quarter of 2020, particularly in relation to the evolving impact of COVID-19, which is affecting markets globally.
The information contained in this presentation may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond our control which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect our current judgment, which may change in the future.
All opinions, estimates and forecasts contained herein are based on information available to Hamilton Lane as of the date of this presentation and are subject to change. The information included in this presentation has not been reviewed or audited by independent public accountants. Certain information included herein has been obtained from sources that Hamilton Lane believes to be reliable but the accuracy of such information cannot
This presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with Hamilton Lane or any of its affiliates. Any such offering will be made only at your request. We do not intend that any public offering will be made by us at any time with respect to any potential transaction discussed in this presentation. Any offering or potential transaction will be made pursuant to separate documentation negotiated between us, which will supersede entirely the information contained herein.
The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.
Hamilton Lane (UK) Limited is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (UK) Limited is authorized and regulated by the Financial Conducts Authority. In the UK this communication is directed solely at persons who would be classified as a professional client or eligible counterparty under the FCA Handbook of Rules and Guidance. Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients.
Hamilton Lane Advisors, L.L.C. is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services by operation of ASIC Class Order 03/1100: U.S. SEC regulated financial service providers. Hamilton Lane Advisors, L.L.C. is regulated by the SEC under U.S. laws, which differ from Australian laws. The PDS and target market determination for the Hamilton Lane Global Private assets Fund (AUD) can be obtained by calling 02 9293 7950 or visiting our website www.hamiltonlane.com.au.
Hamilton Lane (Germany) GmbH is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (Germany) GmbH is authorised and regulated by the Federal Financial Supervisory Authority (BaFin). In the European Economic Area this communication is directed solely at persons who would be classified as professional investors within the meaning of Directive 2011/61/EU (AIFMD). Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients.
As of July 27, 2023