Jed Johnson, Head of the GP Solutions, recently spoke to Private Equity Wire about the dynamics of the private equity secondaries market, including what drivers will contribute to its growth, the operational intensity that secondaries transactions require and how regulation of the asset class will continue to evolve.
Highlights from Jed:
- “GP-leds contain an inherent conflict: a firm is trying to both maximize value for investors in its current fund, while also negotiating terms on which they will manage the same assets going forward within the continuation vehicle. GPs have done a great job of navigating these scenarios by providing their LPs with optionality on whether to sell or roll into the next fund.”
- Firms are hiring a suite of service providers to ensure they’re running a fulsome process and generating fair price points for their investor universe. And regulations are helping, too. Johnson says: “There has been guidance issued by ILPA on how GP-led transactions should be executed, and a fairly straightforward playbook exists to navigate conflicts. That piece of the equation is in a healthy position at the moment, and doesn’t necessarily require more oversight.”
- Operational intensity varies from one transaction type to another, says Jed Johnson of ORIX USA. “An LP-led transaction may involved a portfolio of scores of underlying funds, with hundreds of underlying portfolio companies within them. This is a tremendous underwriting exercise. In the GP-led space, single-asset transactions are more akin to traditional equity underwriting, comparable to co-investment. Multi-asset continuation vehicles can get more complicated, although even those vehicles consist of a subset of value drivers that can make up the focus of the underwriting process.”