Should you put secondaries first when considering a move to the buy side? By Richard Jones

29 March 2019 | Richard Jones, Senior Consultant

Secondaries have an image problem in the world of private equity recruitment that stems from an unfortunate name. I like to think of secondaries as a buffet, offering connoisseurs the opportunity to pick and choose from a diverse selection of vintages and asset classes.

Secondaries buffet

Variety is one of the aspects of the market that has appealed to the candidates PER has placed. One said: “The market is sector agnostic, which means you can work on everything from hotels in Iceland to pharmaceutical companies in Spain.”

Born in financial crisis, secondaries have, since the 1980s, offered LPs a route out of long-held funds, giving them much-needed liquidity. As such, they were originally viewed as distressed sales and opportunistic steals. However, in recent years the market has become ever larger and far more sophisticated, still offering liquidity but with a host of other benefits.

Today, sellers in the secondary market are making strategic decisions about their investment portfolio. Many are looking for liquidity that will allow them to diversify and seek new opportunities. Secondaries pricing has been gently trending upwards since 2010, giving these LPs greater incentive to sell.

It’s not just LPs putting their investments into the secondary market; according to Evercore’s Secondary Market Survey, almost a quarter of transactions are now initiated by GPs who want to offer liquidity to existing LPs, bring on more LPs or raise funds for new opportunities. It’s a percentage that is likely to carry on rising in the coming years.

A candidate we’ve placed in a secondaries role commented on this evolution in the market, saying: “The market is shifting from being purely LP driven to being led by GP restructurings including single assets where the secondary buyer works closely with the GP and digs into the nitty gritty of the companies.”

On the other side of the table, the benefits of secondaries for investors are clear: they get pre-seasoned investments with early distributions, less out-of-pocket exposure, lower risk thanks to mature, substantially invested portfolios and the opportunity to diversify investment portfolios to protect against market instability.  

There’s also a lot more choice on offer these days for investors. While buyout funds still make up the majority of investment opportunities up for grabs in the secondary market, there has been substantial recent growth in real estate, infrastructure, credit, natural resources, venture capital and emerging markets.

Dedicated secondaries firms and investment platforms have developed out of this more mature marketplace, offering alternative career options for those with a banking and accounting background who are drawn to the buy side. The number of opportunities available is growing significantly with the sector.

Part of the attraction of a role in secondaries is how involved you can get in analysing deals. A placed candidate explained what appealed to them about their new role: “Having come from a corporate finance background, I was drawn to the secondaries market because the work involves company analysis and valuation. This can be in the context of valuing a stake in a private equity fund, a restructuring of a fund or investing into one or more assets directly.”

As an investment professional in a secondaries fund, you can expect to gain access to a broad and varied selection of deals and the opportunity to build a career within a fast-expanding part of the private equity universe. For those who want to work in an environment where you are focused on making creative, solution-driven investments, a role in the world of secondaries could be particularly attractive.

One of our placed candidates said working in secondaries is particularly exciting because: “The market has seen rapid growth and, as the market continues to evolve, you constantly see innovative new deal structures and mechanics.”

For more information on the secondaries market, what you need to get into it and what you can expect from a role in it, read the  PER Guide to a Career in Secondaries.

About the author

Richard joined us in 2011 and is a consultant in our London office. He focuses on searches across all levels within a variety of investment strategies, including traditional LBO funds, large global pension funds, fund of funds and secondaries.

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