Trends Watch: Investing in PE Secondaries

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Calvin Marks, Director, Private Equity Secondaries, Felicitas Global Investors. Partners.

What is your outlook for investing in PE secondaries?

We are certainly in the ‘Golden Age’ when it comes to secondaries. Every GP under the sun is looking to create a GP-led division, and with lackluster IPO markets, GPs and LPs are turning to secondaries for liquidity. At the same time, this does lead to the possibility for market saturation and therefore, LPs are continually looking to invest in managers that have an edge and moat within the market.

Where do you see the greatest opportunities and why?

Apart from simply acquiring a minority position in a company or LP stake in a fund, having the ability to structure truly bespoke liquidity solutions for GPs and sellers is extremely attractive right now. Further, by focusing on smaller opportunities (sub $15 million transaction sizes) and without intermediation, it proves to be the area with the greatest room for outsized returns that doesn’t require leverage/gearing. Based on where we are in the market cycle, you can achieve equity-like returns by taking debt-like risk by simply issuing NAV loans and preferred equity against portfolios or companies. In instances where we are taking equity risk, we are often buying at 50%+ discounts to fair value and acquiring more senior securities for added downside protection.

What are the greatest challenges you face and why?

Our transactions are complex, time consuming, and require a counterparty to be more legally engaged than a typical ‘LP secondary.’ As such, transaction processes can take a long time and it is integral to manage expectations and provide ongoing updates – in short, engagement can at times add to execution risk.

What keeps you up at night?           

We are living in a period with a significant amount of macro-volatility – this leaves room for significant opportunity but also error. Like most investors, no one wants to ‘catch a falling knife’ – we are always reading, learning, and trying to determine if we are truly getting the best deal possible for our investors. Based on the ever-evolving landscape, we try and remove binary factors from our transactions, such as leverage utilization, exposure to energy, heavily cyclical industries, or fads such as Web3, blockchain, etc.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.