We titled our last annual update ‘Grounded optimism’ as the vaccine rollout was underway and we gladly left behind the lockdown year of 2020. There was a strong sense that the alternative asset class would navigate its way through the volatility – and didn’t it just, with private capital fundraising for the year already at $882 billion at Q3 according to Pitchbook, and expected to have smashed through the $1 trillion mark for the year. Meanwhile figures provided by Evercore indicate that capital invested in secondaries is predicted to be at an all-time high of $100 billion for the year.
However, a year on, a little more nervousness has crept back in. Although in the Western world most adults are vaccinated and recent updates on the Omicron variant are not as bleak as we initially feared, attention has turned to the aftermath of the pandemic: in particular, the fiscal and monetary stimulus and the knock-on effect on inflation, supply chain constraints, and technology valuations, to name a few. Nonetheless we are excited about many developing themes and we set out some of our thoughts and predictions for the year ahead at the end of this summary.
Like most others in the industry we had a busy year at Ely Place, closing mandates across primaries, secondaries and co-investments. We are particularly thrilled with the number of mandates completed for repeat clients this year, as we continue to expand our offering and develop strong and collaborative relationships with the teams that we support.
Around half of our work was on the private debt side, although we also advised clients in private equity, venture, infrastructure and real estate. Across these asset classes, our mandates were split 50/50 between primary and secondary transactions, and we also completed a couple of new GP Advisory mandates.
Completed Mandate Highlights
- Eurazeo Private Debt
In Europe our principal private debt client has been Eurazeo, where we have supported the firm in two separate successful mandates: a fundraising, followed by a separate GP-led secondary transaction.
Our fundraising mandate was to support their in-house fundraising efforts in Germany with a rifle shot approach to LPs. This resulted in a €100 million single investor commitment on the final closing of Idinvest Private Debt V at €1.5 billion, ahead of its initial target of €1.2 billion. More news of this can be found here.
We subsequently advised Eurazeo on a €108.8 million credit secondary, involving the establishment of a fund continuation vehicle and the provision of liquidity for investors across three funds. This transaction was led by Pantheon, with Pennington Partners and Oddo also participating in the syndicate, as reported here.
In the US, we continued to support our other repeat private debt client, PennantPark. Following the successful completion of a credit secondary transaction with Pantheon Ventures in August 2020, we advised PennantPark on the raising of three funds in the space of 12 months focused on opportunistic debt, senior unlevered and a senior levered strategy. More news on this can be found here, from July, and also here, from January 2021.
- Passion Capital
In February 2021, we announced our role in the closing of a tender offer secondary transaction to LPs by funds managed by Wilshire Associates Inc, acting as the exclusive financial advisor to Passion Capital, an early-stage venture GP based in London. The transaction enabled our client to offer liquidity to its earlier investors while at the same time further institutionalising its LP base.
- Hohnhaus & Jansenberger Gruppe
In June 2021, we acted as exclusive financial adviser to Hohnhaus & Jansenberger Gruppe on a single asset secondary, following a strategic change of direction by an original cornerstone LP. This was a complex GP-led transaction whereby the Ely Place team assisted its client with securing the backing of a prominent LP. More details can be found here.
We have been working on another combined mandate for our private equity client, TriSpan. Following its first close of Fund II announced in November 2020, it celebrated the closing of a significant co-investment deal alongside Keyhaven Capital Partners, as reported here.
- Secondary sale in BlackRock Renewable Income UK Fund to LCIV
In October 2021 we announced our role as exclusive adviser to a large institution in a £107 million secondary sale of a single fund position in BlackRock Renewable Income UK Fund to funds managed by London LGPS CIV Ltd, a company that manages UK Local Government Pension Scheme (“LGPS”) assets.
While the low risk, cash yielding and long-term profile of the fund may be well suited for pension funds and other institutions with longer term liabilities, the transaction did not represent a typical fund acquisition for most secondary buyers. We were therefore required to run a highly tailored and focused process, targeting investors that are not usually active in the secondaries market.
This transaction was widely regarded as an innovative and industry-leading deal, with coverage across Secondaries Investor, Infrastructure Investor, and Institutional Asset Manager. Links to relevant articles on this market-leading transaction can be found below:
Infrastructure Investor: here
Institutional Asset Manager: here
Secondaries Investor: here
- GP Advisory
We have also continued to develop our GP Advisory business line. This includes the preparation of due diligence documentation for new managers, and also assisting GPs with the articulation of their messaging to LPs. Our GP Advisory clients in 2021 included Forestay and Bradda Capital.
Thoughts and Predictions for 2022
In spite of investor nervousness, 2022 seems set to be another bumper fundraising year, with a number of large cap GPs announcing that they expect to be fundraising. Indeed perhaps the increased nervousness is leading some investors to lean towards the larger regional managers over smaller or newer GPs.
With the larger funds taking up the lion’s share of capital, this will make an already difficult and competitive fundraising environment even harder for most emerging managers. We will be advising our clients therefore to be creative in their approach to fundraising: look beyond the pure primary capital to tap into the co-invest, secondary or other strategic capital. In this way, one can turn a ‘problem’ into an opportunity. For example, partner with a secondary investor to buy out a legacy LP; take advantage of the capital flowing into single or multi-asset deals to explore continuation vehicles as an alternative to extending the term of a fund; or offer up co-investment to an LP as a means of developing a relationship with the longer-term goal of raising primary capital.
On the secondary side, we are excited not only about the volume of expected secondary capital growth over the coming year but also the composition of it. In their drive to remain competitive, to build scale and to be versatile in a market of increasing sophistication, the trend amongst secondary players to expand beyond private equity will accelerate. This will include funds focused for instance on private debt secondaries, preferred equity and NAV based lending.
We believe this means there are more options available for private debt GPs in particular and we are already working on a number of such transactions to take advantage of this new capital. These include the more ‘regular’ secondary transactions such as continuation vehicles, tender offers or stapled secondaries, as well as more innovative approaches such as warehousing assets for SMAs funded by secondary capital, strip sales of larger loan positions to re-balance portfolios, and creating portfolios of co-investments to build AUM and develop new LP relationships for our clients.
We also expect the number of secondary participants to grow as the sophistication of institutions increases, particularly among pension funds. The pooling of LGPSs in the UK for example has created players with bigger scale and greater secondary execution capabilities, as we found in our deal with LCIV.
Finally, given the growth in venture capital, we would expect to see more tech secondary transactions. We anticipate some sellers may want to take advantage of the available liquidity to lock in the TVPI when otherwise liquidity may be a few years off. The current pool of buyers for venture is a relatively small subset of the secondary market, but we expect this to grow in 2022.
In summary, we would argue that alongside all the macro uncertainty and nervousness there is much to be excited about for the year ahead. The alternatives asset class seems to have developed a knack for adapting to whatever is thrown at it. With this in mind, a year on from ‘grounded optimism’, the mood at Ely Place at the start of 2022 is one of nervous excitement.
About Ely Place
Ely Place is a specialist adviser in alternative assets. It assists PE, credit, infrastructure and venture GPs raise capital from institutional investors, and acts as a specialist adviser on secondary and co-investment transactions. In addition, the team offers GP advisory services, from pre-fundraising marketing, fundraising strategy, documentation and presentation planning to DD support, closing tactics and ongoing investor relations.
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Ely Place – Daniel Roddick (founder).