Ares/Landmark Secondaries - horrible returns
Some Connecticut pension released their financials stating that their investment into the latest Landmark/Ares Secondary fund (the 2020 vintage that was massively undersubscribed) is held at a 0.80x TVPI and -21% IRR. I heard that they started off the fund with some LP trades priced at par and used a ton of leverage...then the LP trades depreciated and the losses got magnified cause of all the debt.
You really have to suck to be generating less than a 1x return as a secondary fund.
Honestly how did they managed to blow up the secondaries fund? The whole point of this asset class is stable returns and eliminating blind pool risk. I am honestly impressed.
They have no talent. Ares didn't force retention when they bought the business.
Deal based leverage and buying stuff at par to NAV only works when the market is going up... a lot of large cap secondaries guys have been spoilt by using cheap leverage to juice returns. Now that leverage costs have gone up + NAV compression for stuff bought in 2020, it's going to hurt real bad
Yep, groups like partners group...they're notorious for paying par and using 45% LTVs...
can you provide the link from the pension where it discloses returns?
https://secondarylink.com/mobile/news/653c16629c46c9b972368f34/connecti…
Anyone who significantly back levered LP deals paying close to par in 21/22 are just plain smoked. Hopefully this washes out some of those groups
More due to macro reasons than anything else
Technically speaking that was a Landmark fund. Seemed like a lot of the capital was already deployed before it was acquired by Ares. It's probably too early to assess if Ares Secondaries is actually a poor team given that they have built a new team since the acquisition.
Fair enough point, but still we have to put some blame on Ares here. If it was mostly Landmark’s fault, then Ares did not have good enough diligence/foresight to realize how poorly the fund was put together by Landmark. If they cannot even evaluate this fund well when acquiring it, how well can they build a team that can do better? Perhaps with good enough talent poached from elsewhere, this can be avoided for the future, but its a worthy concern, especially for any LP who might have previously considered a commitment to the fund. Just my view but feel free to disagree, curious to see what you think.
Bump - has it gotten better since the post and what are the views on the London team?
Currently considering lateral opportunities from another large secondaries player (think Pantheon). Came across this thread while doing research given this group is in my shortlist. Seems like this thread is misinformed; quick Google showed strong results from the same CT pension.
The fund is doing more than fine (22.81% net). Duration may be contributing to this so the IRR will likely come down but the fund is not even close to blowing up like many here are saying.
What I've heard from the street is that the group is on the come-up. Fundraising on the evergreen side been very strong, and another Landmark (?)/Ares Secondaries flagship is coming. Talent has supposedly improved at junior levels. Outlook is better vs other MF secondaries platforms (e.g., TPG, Carlyle Alpinvest) and group is sharpening up greatly. Seems like one of the biggest selling points is ability to leverage Ares platform for better sourcing and proprietary diligence via other groups and existing holdings (e.g. their private credit arm), and performance should be much better than the last vintage. Obviously the name is attractive too. Curious to hear other's input on this group or others that would be good for lateral.
Agreed, glad you made this point as I saw on Preqin that the fund performance had improved significantly - think they had one bad trade when they only had ~10% of the fund called but now as you said IRR is up to ~20% net. There’s a small but very vocal group on this site that seems to be very negative about secondaries unduly, very odd
can you clarify what's going on at Alpinvest?
I work in secondaries and just saw their pitchbook. they had raised $10B/out $13.5 target (both figures include some co-invest) and the fund is marked at 2.1x Gross.
FWIW they must be playing funny games with their return numbers because it's just not possible for a fund that does LP deals and portfolio finance to be marked at 2.1x gross especially if still early in the fund life, but regardless it seemed like they were doing well.
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