(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 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.
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.
(editing by Rupert Winchester)