PE Secondaries Case Study Prep

For preparing a PE secondaries case study, here’s what you need to know based on the most helpful WSO content:

Key Insights for Secondaries Case Studies:

1. Understand the Types of Deals:

   • Vanilla LP Transactions: These involve buying single or multiple LP stakes in a fund. The GP is generally not involved, and the analysis is more macro-driven, focusing on fund benchmarking, manager analysis, and single company comps (if data is available).
   • GP-Led Transactions: These are more complex and involve direct engagement with the GP to craft liquidity solutions. They are analyzed similarly to LBO/direct-PE deals, as you often have access to confidential GP information.

2. Case Study Structure:

   • Qualitative Analysis: Be prepared to assess the motivations of the seller (e.g., liquidity needs, portfolio rebalancing) and the quality of the GP or fund. For GP-led deals, evaluate the rationale for continuation funds or single-asset carve-outs.
   • Quantitative Analysis: Expect to work with Excel models. You might need to:
     • Value LP stakes using fund-level data.
     • Apply discount rates to projected cash flows.
     • Analyze historical returns, management fees, and carry structures.
     • Assess the maturity profile of assets and potential exit scenarios.

3. Example Case Study:

   • A user shared their experience with a private credit secondaries case study:
     • Setup: Provided with an instruction sheet and a laptop with Excel.
     • Scenario: Analyze the potential purchase of an LP's position in a credit GP. The LP was looking for a 100% cash sale with a limited discount.
     • Data Provided: Historical GP performance, asset details (e.g., instrument type, geography, sector, maturity dates), and discount rates for different instruments (e.g., 80% for 1L, 60% for 2L).
     • Tasks: Evaluate the portfolio, apply appropriate discount rates, and assess the GP's watchlist assets.

4. Preparation Tips:

   • Resources: Review materials like "An Introduction to Private Equity Secondaries" (CAIS) and "Navigating Secondaries: A Guide to Changing Currents" (Landmark Capital/Ares).
   • Trends to Know: Familiarize yourself with recent transactions, such as single-asset secondaries and continuation funds. Examples include BC Partners' continuation fund for Springer Nature and Hellman & Friedman's transfer of portfolio companies to continuation vehicles.
   • Modeling Practice: Focus on fund-level modeling, discount rate application, and sensitivity analysis.

5. Additional Considerations:

   • For GP-led deals, be ready to discuss ethical considerations, such as the resetting of GP economics and carry crystallization.
   • Tail-end and distressed strategies might also come up, so understand their nuances (e.g., low-quality assets, distressed seller situations).

By focusing on these areas, you’ll be well-prepared to tackle a secondaries case study effectively. Good luck!

Sources: Q&A: PE Secondaries Principal, Learning recs for secondaries, Q&A: PE Secondaries Principal