GP-led deals are here to stay but the message around them needs to improve, according to the interim co-head of private equity at New York City Employees’ Retirement Systems as reported by sister title, Secondaries Investor.
Appearing on a panel at the British Private Equity and Venture Capital Association summit in London last Thursday, David Enriquez said that while these deals are now a “permanent part of the market,” a distinction needs to be made between GP-led restructurings, “where it might be a non-performing manager with some value in the assets and they need to reset economics,” and other types of “more constructive” GP-led process.
“[In the past 18 months] you’ve had GP-led secondaries where there may be a stapled component or a carve-out of assets, and those trade at a premium because they are well-known, performing mangers,” he said. “I think this example of GP-led deals is constructive because you are providing a liquidity option to your LPs.”
A key distinction between this type of deal and many restructurings is that the investor has “optionality” due to the ability to stay in the fund on the same terms as agreed when the initial commitment was made, Enriquez said. The industry could do a better job of emphasizing the difference, he argued.
“First I think it’s important to get the vocabulary right and I don’t think the industry has it right yet,” he said.
A number of blue-chip managers have embarked on GP-led processes in the past 18 months. In April, Coller Capital and Goldman Sachs Asset Management backed a €2.5 billion process on Nordic Capital’s 2008-vintage fund. Thomas H Lee Partners and Charterhouse Capital Partners are among those subject to ongoing deals.
In October last year, Apax Partners canceled plans to do a GP-led process on its 2007-vintage fund after push-back for its limited partner advisory committee.
GP-led transactions comprised 26 percent of the $27 billion in secondaries deal volume seen in the first half of this year, according to advisor Greenhill’s first-half report.
NYCERS has $65.4 billion in assets under management, $4.5 billion of which is dedicated to private equity, according to PEI data.