Seventy three per cent of GPs have or would consider using some form of financing in the secondaries market despite the fact that 87 per cent view leverage as non-essential, according to a survey by Investec Fund Finance.
The poll of GPs and advisers in the secondaries market reveals that, whilst leverage is not essential on every deal, it is a widely used tool.
Gregg Kantor, Investec Fund Finance, says: “There seems to be a dichotomy between how the private equity industries views leverage and how they actually use it. While the use of debt is not appropriate in every deal, in the right circumstances it can turn a good deal into a great deal. Debt can enable people to achieve the 18 per cent returns which our survey indicated secondary managers are still targeting.”
The survey of 110 GPs and advisers in Europe and the US, undertaken prior to the referendum, revealed that 51 per cent of secondary & fund of fund market participants believed that the EU referendum would have no impact on their existing portfolios, while 36 per cent believed it would have a negative impact rather than positive.
Matt Hansford, Investec Fund Finance, adds: “It is interesting to see that in the lead up to the referendum, many respondents struck a relatively ambivalent tone when it came to the impending vote and its effect on portfolios. However, out of those that thought their portfolios would be affected, the consensus was that a ‘brexit’ would have a negative impact.
“While it is, of course, too early to quantify the exact impact of the referendum on the market, the secondaries market is more resilient in the face of macro-economic shocks due to the diversity of the portfolios which can provided welcome protection to investors. On top of that, the maturity of, and lower debt levels on, these assets gives the secondaries market further cover against significant macro shocks like Brexit.”
Some 56 per cent of those surveyed believed that the current market volatility is the start of a longer term issue, instead of a market ‘blip’. Participants from the US were more bearish believing it’s a longer term issue with 65 per cent whereas in UK/ EU only 42 per cent have the same view.
Gregg Kantor, Investec Fund Finance, adds: “Volatility has been ever-present in headlines throughout 2016 and it is clear that a large portion of the market views this as a systemic issue. However, this volatility is not an intrinsically bad thing as it presents great opportunities for people to do deals where there is a large amount of value to potentially be extracted.
“We are seeing opportunistic sellers in the current market, not troubled by lack of liquidity and since the referendum, we have already seen a number of investors looking at acquiring in the UK with its favourable exchange rate and potentially discounted assets