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Buyer-led secondaries provide GPs with speed, simplicity and discretion

James Gamett, Founder & CEO of Sweetwater Private Equity, outlines how the growth and dynamic pricing nature of buyer-led secondaries has helped make private companies more accessible for investment than ever before, and how patience, selectivity, and diligence are the firm’s watchwords for future success…

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With secondary transactions now accounting for 12% of all private equity exits, the secondaries market is an increasingly important source of liquidity for both LPs and GPs. James Gamett, Founder & CEO of Sweetwater Private Equity, outlines how the growth and dynamic pricing nature of buyer-led secondaries has helped make private companies more accessible for investment than ever before, and how patience, selectivity, and diligence are the firm’s watchwords for future success…

Can you outline the industry trends that have been driving growth and development within your firm over the past year?

We founded Sweetwater in 2017 because we saw the opportunity for a specialist firm to offer investors direct access to high performing companies, without also buying pools of mixed-quality assets, through what we call “Buyer-led” or “Buyer-driven” secondary transactions. The bulk of the secondary market had become commoditized, with competition narrowing discounts. During the past year, private equity exit activity dropped 70% providing opportunities for nimble, opportunistic investors. The secondary market has exploded, increasing its market share from 4% of private sector exits to over 12%. Buyer-led, single-asset secondary purchases are now becoming commonplace and are expected to grow in popularity amongst private equity managers.

What are the primary challenges your firm and your clients are facing and what is critical to these being overcome?

Private equity needs additional methods of accessing liquidity. The secondary market continues to be a key innovator of liquidity. Initially, it provided LPs liquidity through purchasing pools of LP interests. Today, the market equally provides GPs with liquidity through “GP-led” and “Buyer-led” transactions. The term “GP-led” refers to continuation funds established by GPs to purchase assets from older funds. From a GP perspective these transactions require significant time and resources. They can also be fraught with potential conflicts requiring careful management. Conversely, “Buyer-led” transactions are straightforward. The term refers to direct purchases where assets are transferred in a privately negotiated transaction. GPs choose this option when they prefer speed, simplicity or discretion over price and structure. Most secondary funds are not equipped to deliver on these qualities given the sellers are often the same GPs they rely on for information advantages. Sweetwater overcomes these hurdles by building domain knowledge internally and establishing external relationships directly with management teams and other syndicate GP investors.

What is your outlook for the sector in which you operate for the coming year and how is your firm best placed to support clients in navigating the environment?

We focus on the small cap market – companies between US $200 million and US $2.0 billion. Small cap companies are facing the same challenges as large cap companies, namely inflation, labor shortages, rising interest rates and though it varies by sector, declining demand. Over the coming year, we expect to see a clearer division between healthy companies and those struggling to deal with these factors. We help our limited partners by identifying and accessing healthy, high-performing companies – while avoiding underperforming companies.

Could any shift or change influence the potential growth in the industry both in a positive or negative way?

The growth of Buyer-led secondaries has created a more robust environment for the private exchange of securities. Private companies are now more accessible for investment than ever. For example, while private companies normally access the primary capital market once every two to three years, our Buyer-led secondary sourcing approach generates new potential investment opportunities every two to three months per target company.

Can you list three key learnings you are passing on to clients in the current environment?

We believe this market will reward three key attributes: patience, selectivity, and diligence. Macroeconomic headwinds will continue to stress companies separating strong business models from weak ones. We believe patience in monitoring companies for several quarters will result in superior asset selection. Our investment team conducts a 120-point diligence process which includes management interviews, customer calls and code reviews. But we also seek to protect capital by diligently seeking multiple sellers, driving larger discounts, and negotiating downside protection.


James Gamett, CPA, CFA, founder & managing partner, Sweetwater Private Equity – Prior to Sweetwater, James Gamett was co-founder & president of Madison Creek Partners, a healthcare services company. While at Madison, he oversaw and completed six acquisitions of 11 healthcare facilities. By the time he left, Madison had reached over one thousand (>1,000) employees and exceeded US $70 million in annual revenues and $10 million in EBITDA. Prior to starting Madison, James was a partner & head of secondaries at StepStone Group, a $14 billion global private capital investment firm. He served on the firm’s Investment Committee. During his private equity career, he has led approximately forty secondary transactions totalling over $1.0 billion in invested capital. He is a CPA and a CFA Charterholder. James holds an MBA from the Anderson School at UCLA and graduated with a BS in Accounting from Brigham Young University with University Honors.

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