Q&A: PE Secondaries Principal (part 2)

My friend hosted the first one but he got busy with some deals so I figured I would host a new one in case people had any questions about the sector.

I'll leave my background anonymous but I've been in PE for over 10 years.

Comments (37)

  • Intern in PE - Other
Jan 18, 2022 - 8:57pm

What is your thought on Hamilton Lane? Are they a reputable shop to build a career at? I saw they do fund investments, co-investments and secondary investments.

Jan 18, 2022 - 9:01pm
spawn, what's your opinion? Comment below:

Yes, absolutely. They are very highly regarded in the industry and I think their underlying managers like them and have given them access to good co-invests over the years, especially in some hot VC names.

  • Intern in PE - Other
Jan 18, 2022 - 9:31pm

Thanks for the insight. I did some digging on the company on WSO and it seems a general theme I saw is lower than market comp. I wonder if you have any information on that and what are some of the top paying secondary shops in the industry?

Jan 19, 2022 - 3:36pm
spawn, what's your opinion? Comment below:

Not especially. You're using a different hat/mentality. I think your concerns are warranted if you ultimately may want to go into direct investment.

  • Intern in PE - Other
Jan 19, 2022 - 3:52pm

It seems a lot of firms also do fund investments and co-investments besides secondaries. How hard do you think is it to lateral from an co-investment platform to a direct platform? And can you lateral from a firm like the above to an investment banking role?

Jan 19, 2022 - 4:27pm
MayfairMonkey, what's your opinion? Comment below:

Will the continuation market overheat as public markets fall, LPs lose patience with their dessert being taken away or GPs get too greedy with pricing and terms?

Jan 19, 2022 - 6:44pm
spawn, what's your opinion? Comment below:

I don't think so. The GP-led market has been around for 15 years but it was a tiny portion of the overall secondary market and often geared around restructing garbage quality "zombie funds". Top quality GPs stayed clear of these liquidity mechanisms as they feared some of the misalignment with LPs. Long story short, fast forward to five years ago and one of the best bull runs ever in the global economy and GPs don't seem to care about optics. This is a way for them to gain even more fees by retaining their best assets. Sure, I've seen some ridiculous situations, like a single asset carve out of a company from a 2019 vintage fund - it was only in the GP's fund for two years and they wanted to chrystalize carry and also adjust the carry quantum upwards...there is a buyer out there for everything.

Jan 20, 2022 - 7:53pm
spawn, what's your opinion? Comment below:

No deal is the same. You can make a great return out of buying garbage at the right price and structuring it appropriately. The market is also continuously evolving and growing (at a much faster pace than regular primaries).

  • Analyst 1 in IB-M&A
Jan 20, 2022 - 12:00am

What are your thoughts on Ardian and GCM Grosvenor? Do you know what compensation would look like at these places?

Most Helpful
Jan 20, 2022 - 7:52pm
spawn, what's your opinion? Comment below:

I unfortunately don't have a good grasp as to compensation at either firm. Apart from that, below are my thoughts on Ardian (I've unfortunately never come across GCM despite the fact that they've raised decent capital over the year).

Ardian:

-They do more than just secondaries, but I would still only commit to them money for their secondary platform (if at all).

-They focus on LBO (no VC, and limited GE), very high quality assets, purchased at minimal to not discount (and often premiums to NAV).

-They are an indexer - they buy extremely large portfolios from the likes of Sovereign Wealth Funds and will use insane amounts of leverage to make their return. Banks love them due to the diversification (often buying hundreds of LP stakes), good vintage concentration (not tail end, but not too young where there is massive unfunded), and LBO-focus to generate somewhat consistent cashflows.

-They're very institutional, they know how to build portfolios, and they're generally good at generating IRR - their TVPI leaves something to be desired, despite all the leverage use, but this is often because of the high prices they pay.

-Naturally there is extremely correlation to the public markets and their assets typically rise and fall accordingly (but with added beta due to all the leverage).

-If you wanted a levered index of LBO PE then they're a good bet but I think there are better 'value' alternatives with less leverage.

Jan 22, 2022 - 7:24pm
spawn, what's your opinion? Comment below:

I wouldn't imagine it would be that difficult, but why would you want to do that? At the VP level you often get carry and most secondary funds charge 15%.

  • Associate 1 in IB - Cov
Jan 22, 2022 - 7:46pm

Thanks again for your wisdom. Can you elaborate on what average carry looks like at a FoF shop? Having a tough time conceptualizing what this actually means at various levels (realize this varies but trying to get a rough estimate). For instance, is $200k carry at the VP level for FoF high or low? Is carry at principal level $500k per year and $1M or more per year at the MD level?

Jan 22, 2022 - 8:45pm
prolevel, what's your opinion? Comment below:

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