Taking a different approach
The diversity of strategies within the secondaries market is a testament to its growth and maturity. With secondaries funds of all sizes and flavours, strategies have become more refined and firms pride themselves on finding unusual ways in which to address the market.
While many firms address the full spectrum of transactions in terms of size, London-based 17Capital sets itself apart by offering an alternative to a traditional sale on the secondaries market.
“I founded 17Capital in 2008 to address a gap in the market between secondary firms and debt providers,” says Pierre-Antoine de Selancy, managing partner.
Investors use 17Capital’s preferred equity in two ways: institutions can unlock liquidity without selling on the secondaries market, thereby preserving ownership and the future-upside of their portfolios; they can also increase their investment capacity with more flexible funding than bank debt.
“Our strategy is truly unique in a busy and competitive private equity market,” says de Selancy.
17Capital is currently investing out of its €500 million fund, which closed in December. As a preferred equity provider, it receives the first claim over portfolio distributions until it has recouped its initial investment along with a preferred return. Meanwhile, counterparties continue to receive all or the majority of remaining distributions.
One of the most talked about secondaries firms these days is Ardian. It has adapted to the growth of the secondaries market by being able to complete some of the largest transactions, often of $1 billion or more, in a quick and efficient manner. “There are only a few players that have the capacity to execute very large deals,” says Olivier Decannière, head of Ardian UK. “We have the capacity to offer the liquidity on such large deals.”
Ardian’s most recent fund is its $9 billion Ardian Secondary Fund VI, which closed in April 2014. The firm is said to be currently seeking another $9 billion for its seventh dedicated secondaries fund. The group also carefully uses leverage for a majority of its deals. Not only can it provide large amounts of liquidity, but it can do so in a matter of a couple of months, thanks to its 55 investment professionals, 10 global offices and database of more than 1,000 primary funds in which it invests from its fund of funds.
“That gives us access to a lot of information,” says Decannière. “We know the limited partnership agreements, the fund, the transfer document. We can go fast and react quickly to a seller.”
Azini is another firm that stands out. Focused on direct secondaries, the London-based company acquires stakes in individual technology companies as well as portfolios. It usually takes larger stakes than its competitors (typically in excess of 20 percent and up to 100 percent in some cases), as well as board seats.
The firm prefers growth-stage companies, both private and illiquid small-cap publically traded, with significant commercial traction and revenue north of $20 million. But the most unusual aspect of Azini is that it has only one limited partner in its $100 million fund: Lexington Partners, a secondaries fund.
“It’s a very good relationship, but it’s quite unusual,” says Nick Habgood, co-founder and managing partner at Azini. “We play in a space where they probably wouldn’t play directly with their own resources and so we give them exposure to a really interesting niche within the secondaries market.”