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Curious about the Secondaries space and had a question. Is it safe to assume that the bigger the fund the better the firm? Given that Secondaries main benefit is scalability.
Correct me if I'm wrong, TIA.
Completely inaccurate
So how would one rank Secondary firms?
I spoke with someone in the Secondaries space (top 5 firm according to size) and they said that, which made sense to me. Open to a different POV however.
Uh returns?
You would think that's the case, but it isn't.
It depends what you consider "better". There are the truly mammoth funds (Ardian, SP) that are basically indexes to the PE market given the volume of LP deals they close. Returns have been healthy, but the juniors work to crank out a ton of models and I wouldn't call it brain surgery given how diversified the portfolios are.
On the other end, you have some more GP-focused (or even single asset focused firms more recently) where you're taking highly concentrated bets, and generally working with smaller fund sizes. Some of the success on this end of the market is hit or miss kind of like any buyout shop. But the greater check size to smaller groups of companies lends itself to more involved diligence, and potential for outsized returns (or donuts). Some of these firms have better carry terms than the first group.
LPs look to each category for different needs. For the first camp, it's being able to make a large commitment in one go and have reasonable assurance of beta-index returns. For the second camp, it's playing for alpha and market outperformance.
I think each side has its merits and place in the market, but if you're looking to enter the industry they're two very different experiences.
To add to the smaller end of the market / GP-led focus, although still nascent, I think some of the guys that are asset first manager second are going to find some unique strong returning deals. I find it so dumb when some investors won’t dig in because they don’t have a pre-existing relationship and yet in one of the recent surveys investors admitted there’s no material difference in performance.
So as much as people shit on the TPG’s of the world for struggling to fundraise, I do think there’s potential on that side of the market for the guys that aren’t picky on manager quality.
Fantastic write up, thank you.
Do you mind PMing me? I have a couple of more questions regarding the Secondaries space but don't want to detract from the OP.
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