Constructing a portfolio of single asset secondaries?
Apologies in advance if this is a dumb question since my background is in public markets. I'm wondering how to approach a portfolio construction framework for single-asset secondaries. I'm unclear on how to tackle portfolio construction when I don’t even know what transactions (size, sector, region, timeline of distributions etc.) might be available in the market in the coming 12 months. Additionally, it seems PE favors some industries more than others, which makes me question the time it might take to build a well-diversified portfolio or with a diversification similar to a benchmark. I guess the same constraints are faced by GPs so maybe I should look at their framework to build their funds? Or dig into portfolio construction by Fund of funds? Are there any recommended resources or literature on this topic?
You're going to need some serious cash to commit to quality deals and not get forced out. Like minimum 100mm+ per deal if you want to be taken seriously
It will be through co-investments so the ticket is significantly smaller. My issue is how to think about the fit of each opportunity in a portfolio that is starting from scratch while not knowing what my investable universe will be.
It seems to me that if I pass on a transaction in food and bev for example, I might not get another one in the near term which impacts my diversification efforts. If the transaction is related to Saas, Healthcare etc I can expect there to be plenty more opportunities so I can be picky on whether to participate or not in this particular co-investment.
I am just trying to adapt my public market framework to a different world.
Secondary investors do not care about sector concentration like in publics. I know groups that have 50% of their portfolios in tech or business services, healthcare etc.
Based on the most helpful WSO content, here are some insights and resources for constructing a portfolio of single-asset secondaries:
Key Considerations for Portfolio Construction:
Transaction Availability:
Diversification:
Frameworks to Consider:
Recommended Resources:
Additional Insights:
By leveraging these resources and insights, you can develop a more informed approach to constructing a portfolio of single-asset secondaries.
Sources: Learning recs for secondaries, Differences between Co-invest and Secondaries?, Q&A: PE Secondaries Principal, Q&A: PE Secondaries Principal, Q&A: Endowments, Foundations, & Asset Allocators
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