17 September, 2013 – “Secondary directs bring higher returns, but it comes at a price,” according to Cipio Partners managing partner Roland Dennert, speaking at WBR Research’s Capital Creation conference held in Monte Carlo in September.

Dennert was featured alongside fellow speakers from Headway Capital Partners, Cubera, Omega Funds and Morgan Stanley in a panel dedicated to discussing niche secondary strategies.

Around 25% of all LPs engage in secondary transactions, but niche strategies such as Direct Secondaries are far less accessible by their very nature.

“Only a certain number of specialists are equipped to do these transactions, so it’s logical that the returns in such niche strategies should be higher,“ Dennert argued.

Earlier in the day, Oliver Gottschalg, an associate professor from French business school HEC Paris, had cited average performance multiples for mainstream secondary funds as standing at 1.37x.*

“If you compare returns from a direct secondary deal to returns from a large, diversified fund portfolio, the returns for the former are likely to be higher, but the beta will also be higher. The smaller the deals, the more work it takes to deploy capital and manage investments,” Dennert noted.

The panel dubbed firms operating in niche markets as “innovators” within the secondary market. “Niche firms will always have to come up with new investment strategies, which, if successful will be adopted by others and become mainstream,” said Dennert.

“Some 20 years ago, secondaries were only pursued by a select few, but now they are mainstream. Secondary directs have only been around 10-15 years, but with the buyout funds of the last decade reaching end-of-life they are increasingly moving towards the mainstream.”

Analysts estimate Secondary Direct to account for 12% of the overall secondary market up from only 6% one year ago.

* Median performance of global secondaries funds vintage 2008-12 based on Preqin data.

 

 

For further information contact:

Fay Margo, Cipio Partners

Email: fmargo@cipiopartners.com

Tel: +49 89 55 06 96 0