Leverage

While the secondaries market is providing a convenient avenue for limited partners to sell fund stakes and access to liquidity, alternatives such as preferred equity have become welcomed opportunities for LPs looking to preserve portfolio upside, explains Pierre-Antoine de Selancy, managing partner and co-founder of London-based 17Capital.

The use of leverage has become a common occurrence in the secondaries market, but firms like Ardian are making sure they remain cautious when they use debt in a transaction.

The alternative assets specialists has advised on more secondaries deals so far this year than all of 2014.

Increased competition is prompting secondaries firms to find new ways to maintain returns, including using leverage and participating in restructurings, according to Sunaina Sinha from Cebile Capital.

Whether for acquiring portfolios, ensuring the efficient use of investor equity, or for returning value to investors, secondaries participants are increasingly viewing debt as part of their strategic mix, explains Simon Hamilton, head of Investec Fund Finance.

Using leverage in private equity secondary transactions has its advantages but also raises issues around the form of security of such financings that both buyers and sellers should be aware of, explains Ted Craig, a partner with MJ Hudson in London.

Navigating full pricing, the rise of restructurings and the use of seller financing in today’s booming secondaries market were among the topics debated recently in New York at a PEI roundtable.

Secondaries buyers are increasingly using deferred payments and leverage to compete for assets. But smart structuring can also lock in returns in case there’s a new downturn in the euro zone.

Leverage was predominantly used to buy portfolios of stakes in mature buyout funds, according to Evercore.

Apax Europe VII recently exited Swiss mobile operator Orange Communications for $3bn.