REFILE-DEALTALK-Opportunists bid up private equity assets

Thu May 21, 2009 6:07am EDT

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(Corrects date in dateline to May 21, not May 19)

* Opportunists bid up secondary private equity prices

* Buyers have up to $20 billion to spend

* $40-50 billion private equity assets on the market

By Simon Meads

LONDON, May 21 (Reuters) - Pension funds and wealthy middle-east sovereign wealth funds are buying up investments in private equity funds, pushing up prices and sidelining secondary firms that specialise in acquiring the assets.

The market for second-hand private equity assets -- where private equity investors offload assets to specialist buyers -- has mushroomed as the credit crisis has intensified. And increasing numbers of cash-strapped investors are concerned about meeting their future commitments to buyout funds.

New investors have been attracted to deals by steep discounts to net asset value, forcing up prices for specialist buyers, such as Goldman Sachs (GS.N) and HarbourVest Partners (HVPE.AS) that last month closed secondary funds after reaching their $5.5 billion and $2.9 billion targets respectively.

"We are finding that many of those (opportunistic) parties are now participating actively in the market and are effectively outbidding the secondary purchasers," said Brenlen Jinkens, managing director at secondaries advisory firm Cogent Partners.

These so-called "tourists" have up to $20 billion to spend on such deals while traditional secondary firms have up $30 billion to $40 billion of "dry powder" -- the private equity term for capital reserved for deals -- Antoine Drean, chairman and CEO of placement agent Triago estimated.

"I wouldn't be surprised if prices picked up a bit in the next weeks or months because of this demand," Drean said.

NO BID FEVER

But despite these occasional buyers muscling in on their turf, secondary players remain wary of competing for assets.

"We are happy to hold to our discipline on price and hope we can do deals at levels that meet our target returns," said Peter Wilson, managing director at HarbourVest Partners.

HarbourVest priced some $30 billion of assets in 2007, and $59 billion in 2008 -- of which 45 percent were in financial institutions -- but completed on just a tiny fraction of deals as sellers hesitated about offloading assets at huge discounts.

But as the most up-to-date portfolio valuations from December and March start filtering into the market, the pace of transactions is picking up. "Whilst the number might be the same, it is aesthetically easier to make the sale," said Ylan Steiner, partner at law firm SJ Berwin.

U.S. universities Harvard and Duke turned to the secondary market last year to sell private equity investments while UK charitable foundation Wellcome Trust also invited bids for part of its 3.8 billion pound ($6 billion) private equity portfolio.

"TOURISTS" DISEMBARK

There are about $40 million to $50 million of private equity assets on the market, Drean estimated, although sellers frequently put more assets on the market than they really need to sell and plan only to dispose of a portion.

Cogent is currently marketing its largest ever European deal and expects to sell most of it to opportunists, Jinkens said, but declined to divulge which assets is being sold.

Pension funds top the list of these opportunists, dubbed "tourists" by Cogent, ahead of endowments and asset managers. But sovereign wealth funds have also a long history of investing in private equity and are also eyeing deals.

"Some have a lot of money to put to work and are buying secondaries more and more," said Drean.

But secondary specialists play down the appetite and ability of occasional buyers to do large deals for swathes of positions in private equity firms.

"These people are typically not set up to handle complex transactions of the kind that sellers are oftentimes looking to complete," said HarbourVest's Wilson. ($1=.6331 Pound) (editing by Rupert Winchester)

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