Is secondaries GOATed?
Incoming IB analyst, non-target going to mm bank.
I keep thinking: is secondaries the promised land? I know I'm never going to land at a top tier red-blooded PE fund, but everyone's talking about secondaries and I think for someone like me (who thinks PE's best days are behind it) might be able to hop into a super interesting secondaries role.
I know secondaries isn't as respected right now, but I think a similar evolution could happen to it like with what happened for private credit, where it went from being second-tier to a huge growth space.
Am I tripping? Please poke holes into this.
Here comes the Nigel Dawn and Jeremy Coller fangirls
I work in secondaries and love it. Super interesting work, lot of focus on transaction structure and novel approaches to getting deals done. Great for a private markets junkie.
My fund does a fairly large number of transactions per year (probably a ratio of 4+ add-ons to every new logo) which gives it an interesting dynamic you don't see in other private investment strategies. Kind of a weird middle ground between PE and HF where the market is illiquid, you're one of only a few bidders, there are significant barriers to information, but you can also transact with many different sellers who might each have different clearing prices. Almost like the closest thing you can get to pre-exchange stock trading nowadays.
This is secondary direct minority investing, though. Pretty different from the typical GP / LP led secondaries strategies (Hamilton Lane, Lexington).
What are some of the top funds in your space?
Sorry I don't know which funds are 'top' in the direct space. Would say funds like Sweetwater and Akkadian follow a similar strategy to us, though. There are at least a dozen funds I know doing this. Industry Ventures is big and one of the first to do venture secondaries but have heard direct is not as much of a focus there lately. It's a small subset of the secondaries space, so not like there is an Apollo or Blackstone you can point to. BX SP does LP stakes for example.
1. For GP led we will try to model at the asset level as much as we can, but if it’s a portfolio larger than 5-10 assets we typically focus on the majority of NAV which is often in 1-3 larger positions. You can’t always do a waterfall for each position so we get creative and model various exit scenarios based on reasonable assumptions for growth and an ultimate exit multiple. We don’t focus on GP-led though, so there might be GP-led funds that do much more sophisticated analysis. We specialize in single asset / direct. More often than not we pass on GP-led deals because the constituent assets aren’t a fit, can’t get enough info, or pricing expectations aren’t realistic (e.g., asking 90% of a 2021 LR valuation on assets with little progress to show for the last four years).
2. I won’t opine on majority. As minority investors we are aware of the limited influence we are likely to have on the company. We just try to be helpful by taking care of any secondary transactions that arise while we are shareholders. Better than shareholders selling to an outsider which would require more of management’s time on diligence.
Do these secondaries deals happen with the VC sellers or PE sellers? Many thanks!
I’ll counter to the above, I work in secondaries and I hate it
I went into thinking I would have good WLB but that’s completely out the window , most of us are doing 60+ hours a week and some deal sprints get us to 80+, so not much different to banking
I’m also comped less than I was at banking and we don’t get carry till the VP Level
Secondaries is not paradise
Does your shop pay below market?
I've been fortunate enough to speak to people at the biggest Secondaries funds and they all get paid market.
I'm at one of the larger secondaries players and the comp is just below market
Secondaries are a shit industry and you don't want none of it. It's definitely not as respected right now, and pay no attention to what you hear about secondaries. Trust me. I'm a secondary investor
You should definitely go into primary investing. That way you can make the same stupid investment decisions that 90% of primary investors continue to make decade after decade, and then come crawling to me when you fuck up so I can buy your shit for pennies on the dollar as you desperately try to squeeze out distributions for your LPs that are pissed off they gave you anything in the first place. Your stupidity will allow me to continue delivering DPI to my investors and raising more funds.
Go into primaries and be like everyone else that makes their career decisions based on what the average MBA prospective PE bro finds "more respectable" instead of where the fucking cash is.
Ok
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