Evolving opportunities in secondary market

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Christian Bohler

Unigestion: Best Secondaries Manager (fund size <USD1 billion) — The secondary market has evolved significantly in the last decade, an evolution that has been accelerated by the Covid-19 pandemic. With 50 percent of today’s deals by volume being led by general partners (GPs), this market is expected to have a record-breaking year.

“Growth in the secondary market is being largely driven by GP led deals,” notes Christian Böhler (pictured), Head of Secondaries at Unigestion. “These are not coming from market distress but more from a dearth of liquidity given that overall exit activity has been down.”

The firm’s strategy is specifically to focus on smaller secondary transactions where the managers believe there is less competition and returns are driven by company growth and attractive pricing rather than leverage. “Our latest secondary fund began investing in H2 last year which means we are in a good position to take advantage of the current environment on behalf of our clients,” Böhler says.

Over the coming year, Unigestion’s main objective is to finalise the fundraising of its latest secondary fund and continue investing it in attractive, high return potential deals. Böhler outlines: “Our clients view the current opportunity for secondaries as particularly desirable. We have been very active in GP-led deals, where we are able to acquire tailored portfolios of high growth companies at attractive valuations.

“Such deals lead to immediate results for our clients – no J-curve in the short term and material return potential in the long term. GP-led deals represent an appealing way of solving the tension between investors’ desire for liquidity and GPs’ desire to continue owning their best performing assets.”

Although the outlook for the secondary market is positive, challenges remain, primarily when it comes to continue delivering returns at a premium to public markets. Böhler comments: “On one hand, there is a wall of dry powder chasing deals in the PE market. On the other hand, there are pockets of the market which are still relatively untapped.

“Take the secondary market where a large amount has been raised in the last 12 months to invest in secondaries. Firstly, this has been driven by a handful of funds at the large end of the market with less capital going to smaller secondary funds. Secondly, the size of the overall opportunity is vast. For example, GP-led deals hit a record high last year, but this is only the tip of the iceberg as only a small proportion of GPs have embarked on such deals so far.”

Against this backdrop, clients continue to raise ESG concerns. From its perspective, Unigestion has included ESG as part of its investment process for over 12 years. In addition, the firm is fully compliant with the Sustainable Finance Disclosure Regulation and uses ESG as an important value creation tool.

According to Böhler, TER is another key issue clients are raising: “They are sensitive to TERs. This is why clients like our direct and secondary offerings, which provide exposure to private companies at a much lower TER than traditional fund of funds offerings.” 

Christian Böhler, Partner, Head of Secondaries, Unigestion
Dr Christian Böhler is Head of Secondaries at Unigestion. He joined Unigestion in 2017 with the integration of Akina into Unigestion’s private equity unit, having joined Akina in 2005, where he was instrumental in setting up the secondary fund investment activity. He previously worked for SCM Strategic Capital Management (today Mercer) and PwC. Christian holds a Master’s degree and a PhD in Economics and Business Administration with a major in Finance from the University of St Gallen (HSG), Switzerland.