The more opaque the market, the more advantageous it is to have access to information. This couldn’t be more the case in the secondary market.
Buying a limited partner or general partner stake in an existing fund is simply easier when you have an existing relationship with the fund manager. Better yet, if you’re already invested in the fund and have collected performance reports for several years, you have a clear advantage over newcomers.
“There are certainly people entering this market, but it has real barriers to entry,” says Matt Shafer, the global head of direct private equity at Northleaf Capital. “You have barriers to entry in terms of the data that you build up and the relationships that you build up over a 20-year-plus period, dealing with these private equity firms. So I’m a huge believer that this market favors the incumbents.”
Ardian is another incumbent with this data advantage. The firm’s Ardian Secondary Fund VIII is the second-largest dedicated secondary fund in the market, according to Pitchbook.
Last month, the Ardian team acquired another 20 LP stakes from the Canada Pension Plan Investment Board. “It’s a well-diversified portfolio led by high-quality GPs. We know the GPs well,” says Michel Fellmann, senior managing director at Ardian. “Visibility into each buyout fund is key. A huge part of valuing a portfolio of buyout funds in a secondaries transaction like this lies in access to information about the underlying companies. Ardian’s been in the secondary business for over 20 years and it’s always been in our DNA to have a data intensive approach in an industry that historically has a lot of information barriers.”
Fellmann says Ardian’s database of “over 1,600 underlying fund investments with over 600 GPs and 10,000 plus underlying companies,” gives them a clear edge in these deals.
Matthieu Teyssier, another managing director at Ardian, says it’s this kind of intelligence that provides his firm a competitive advantage.
“For a secondaries transaction like this one, typically we are an investor already in the vast majority of the funds that we’re acquiring so we are valuing and buying what we know,” he says. “From a risk standpoint, we have a very high degree of confidence as it relates to the underwriting and the base case that we’re making. That’s a huge part of our strategy – buying with very high degrees of coverage so we can value appropriately.”
Contact Matt Shafer at [email protected]
