Disciplined managers critical to secondaries success

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Andre Aubert LGT

LGT Capital Partners: Best Secondaries Manager (fund size > USD1 billion) — Appetite for private capital has continued to grow and investors are seeking to broaden the scope of their investments in the space and introduce sub-strategies and allocations within their portfolios. As investors wrestle for access to the best deals, disciplined managers are critical to their success.

“Private equity investors recognise that they have more ‘tools’ at their disposal to more actively manage their exposure to the asset class. While we espouse the notion that investors should not ‘time’ the market, many investors have particular needs to either scale up or scale down exposure to the asset class due to M&A or strategic changes at their portfolio level,” outlines André Aubert (pictured), Partner at LGT Capital Partners. “Secondaries – both buy-side and sell-side as well as co-investments and direct equity secondaries – can be an elegant and efficient means of more actively managing NAV within a portfolio.”

Partner Martha Heitmann explains how the expanded scope of PE portfolios has led to a desire for differentiated sources of risk, return and duration within their portfolio. “By introducing secondaries, co-investments, direct equity secondaries, venture capital and growth equity to client portfolios, LGT Capital Partners has helped clients achieve complementary return streams and sources of alpha in their portfolios,” Heitmann says.

This increased need for diversification is also resulting in investors looking to add new managers and ensure they have high potential talent in their portfolio. Ivan Vercoutère, Managing Partner comments: “LGT Capital Partners has a long history of investing in first-time funds – both on a primary basis as well as through our secondaries strategies, where we have a successful track record of sponsoring the spin-out of managers. This trend is countered by the fact that many investors are trying to ‘do more with less’ – trying to invest greater amounts with fewer managers. As such, LGT Capital Partners plays an important role as a strategic partner and multi-manager for investors to achieve both ends simultaneously.”

Aubert discusses the evolution of the secondaries market: “Secondaries have evolved substantially since the early days of the market, when they were perceived as the last recourse for distressed sellers. Today, they present a highly attractive value proposition, not only as an active portfolio management tool for sellers, but also as a complement to most investors’ private market portfolios on the investment side. They offer a smooth cash flow profile, quick build-up of NAV and early distributions, meaningful diversification, as well as the potential of counter-cyclical advantages.

“With the rising popularity of the asset class comes increased competition among investors to gain access to the best opportunities. This makes partnering with a disciplined secondary manager critical, especially in an increasingly competitive market.”

Further, private equity reporting can be uneven and inconsistent among managers and strategies, and could lag by months or quarters. “Globally positioned buyers with integrated capabilities across the private market spectrum are preferred buyers of choice. Secondary buyers who have broad, deep knowledge of the underlying assets are often in the best position to price a transaction from the bottom up, a process that gives a true sense of the value of the transaction. This helps them initiate and execute a transaction quickly and efficiently, with favourable pricing dynamics,” Aubert explains. 

André Aubert, Partner, LGT Capital Partners
André Aubert is a partner at LGT CP. He has an additional focus on infrastructure activities. André joined the firm in 2005. Prior to that, he was a principal at Index Ventures, a pan-European venture capital firm, which he joined in 1999. At Index André focused on investment opportunities in the communications, semiconductor and embedded software sectors.

Ivan Vercoutère, Managing Partner, LGT Capital Partners
Ivan Vercoutère is a co-founder of LGT CP Ltd, and a managing partner and a member of the Executive Management Team. Prior to joining the firm in 1998, Ivan was vice president and member of the investment committee of Pacific Corporate Group, Inc (PCG), a California-based global private equity advisor and manager.

Martha Heitmann, Partner, LGT Capital Partners
Martha Heitmann is a partner on the secondaries team at LGT CP in Pfaeffikon, Switzerland. She is also the chair of the Diversity & Inclusion Committee. Martha joined the firm in 2007. Prior to that, she worked in business development for Telephia Inc in San Francisco. From 2001 to 2003 she was a corporate and investment banking analyst for Bank of America Securities in San Francisco.