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Investors are upping exposure to GP-led secondaries – here’s why

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Almost two-thirds of global investors are upping their dollar allocations to GP-led secondary recap transactions as firms look to navigate the increasingly muddy waters of inflation, recession and market turmoil.

That’s according to research from Stifel, which said investors ranked tech, healthcare, services and industrials as their current top industries of focus. Life sciences and energy ranked the lowest, essentially unchanged from the last GP Advisory survey in May 2022.

Stifel said investors identified aggressive NAVs, mediocre investment opportunities and unknown GPs as top issues when underwriting GP-led secondary recap transactions.

More than 90% of respondents believe it will take another quarter or two for NAV marks to adequately capture the downdraft in public equity and transaction comparables.

Additionally, and perhaps unsurprisingly, in H2 2022 investors identified inflation and recession resilience as another top factor.

LP support and industry headwinds were of the least concern in both H1 and H2, and post-Covid stabilized run rate was also identified as an issue of low concern for investors in H2 2022, it added.

Peter Martenson, managing director of GP Advisory, secondaries, and directs at Eaton Partners, said, “The findings from our latest Advisory Survey show that investors continue to increasingly prioritize GP-led secondary recap transactions this year.

“When comparing the results from our prior survey, it is clear that investors remain focused and intend to accelerate investment dollar allocation to these types of transactions that provide portfolio management tools to GPs and provide liquidity options to limited partners, which is needed during the current macroeconomic cycle for the private capital markets.”

More than half of respondents to the survey said they invested in excess of $100m in GP-led secondaries in H2 2022, and 11% invested more than $500m in the same period.

That compares with only 36% of investors who expected to put in excess of $100m to work in GP-led secondaries in the first half of this year, and only 7% that were planning to invest more than $500m over that period.

Respondents were evenly split between single-asset and multi-asset GP-led secondary recap opportunities in H1 2022, but heavily favored (68%) multi-asset GP-led secondary recap opportunities for H2 2022.

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