PitchBook News - The rise of GP-led secondaries

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The Research Pitch
April 22, 2023
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PE Barometer: Our latest data forecasts that PE returns in Q1 will likely step up to the historical average of ~3%—a sign of stability. See which indicators influenced the new reading: read more.

The state of US PE & VC: In case you missed them, we released our flagship US PE and VC reports last week, featuring a combined 78 pages of data and analysis to help you understand the trends of Q1 and what's to come:
 
Understanding the differences between GP-led and LP-led secondaries
If you've followed the world of private markets over the last few years, chances are you've increasingly heard secondaries come up as a topic of conversation.

I knew some basics about secondaries—that they gave LPs a way to cash out of a fund before the technical end of the fund life, while also giving the buyer a more mature portfolio compared to a regular private equity stake (and usually purchased at a discount).

But it wasn't until I started working at PitchBook in late 2022 that I started hearing about "GP-led secondaries." What were those, and how did they work?
 
2020 was a standout year but fund count has stayed high.

It turns out that GP-led secondaries, facilitated by the use of continuation vehicles (CVs), aren't new—they first appeared after the global financial crisis, when GPs found themselves with funds nearing the end of their fund lives, but with assets still sitting in them.

GPs would roll these remaining assets into a new fund in the hopes of finding some upside given a little more capital and time.

While LPs were suspicious of these transactions when they first came on the scene, in recent years this mechanism has proven to be a popular tool that provides LPs with another avenue for liquidity beyond traditional secondaries.

With CVs, LPs can either 1) sell their positions and generate liquidity, 2) roll over their interests into the newly established vehicle, or 3) roll their interests and agree to commit additional capital to the new vehicle to avoid diluting their stake.

Though the secondaries space is now comprised of both LP-led and GP-led deals, the nature of these transactions differs greatly; from levels of diversification, return expectations, and due diligence considerations, there are a number of significant differences between the two types that allocators who are new to the secondaries market may want to know about.

Download our free research to read more: The Evolution of Private Market Secondaries
 
Best,

Juliet Clemens
Analyst, Fund Strategies
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Macroeconomic pressures catch up to European PE and VC
I am Nicolas Moura, an EMEA private capital research analyst here at PitchBook, and this week we published our Q1 2023 European PE Breakdown and European Venture Report.

European dealmaking slowed in Q1 as we are finally seeing the impacts of the macroeconomic environment on private markets, in PE as well as VC.

PE deal value fell 6.8% YoY in Q1 while VC deal value fell more dramatically, by 32.1% YoY. The increasing interest rates have led sponsors of private assets to revalue their balance sheets and focus on operational efficiencies to improve revenue growth and margin expansion.

We have seen a cooling in megadeals in favor of smaller bolt-on acquisitions, often in the form of M&A in the €100 million to €500 million deal size for the PE industry. For VC, we have seen a retreat in investment levels notably from nontraditional investors who often target the venture growth stage, which has dropped for two consecutive quarters now.

European median buyout multiples fell from a peak of 14.5x EV/EBITDA in Q1 2022 to 10.2x in Q1 2023 on a rolling-four-quarter basis—the lowest level since the global financial crisis.

In terms of exits, we saw a plateauing in exit value in European PE to levels last seen pre-pandemic. In VC, exits continued declining sequentially, dropping 69.6% QoQ.

In both asset classes, the public listing exit route remains muted with only three public listings for PE in Q1 and nine for VC. Sponsors are waiting for some macroeconomic visibility before considering exits and as a result, we are seeing assets remain in private hands for longer.

Fundraising in Q1 was rather strong for PE and continued to decline for VC. In PE, fundraising was kept afloat by a return to basics: traditional large buyout funds from experienced fund houses prevailed, such as Permira's €16.7 billion megafund.

In VC, Q1 reflected the first substantial decline from the pace set in the past four years; the VC ecosystem could finally be displaying the effects of challenging fundraising conditions caused by a tightening monetary policy.

For more data and analysis, download the free reports:

European PE Breakdown

European Venture Report
 
Best,

Nicolas Moura, CFA
Analyst, EMEA Private Capital
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Industry & Tech Research  

In case you missed anything, here's a recap of this year's deep dives from our industry & tech team.

Only PitchBook clients can access the premium reports, but anyone can read the executive summaries below: And be sure to stay tuned, as we'll be adding to this growing scope of coverage this quarter!
 
Benchmarks  
 
Our latest fund performance data doesn't flatter any private capital strategy, but VC has fared the worst over the most recent periods.

The newest PitchBook Benchmarks have just gone live, with dozens of pages of fund performance metrics through Q3 like IRR quantiles, pooled horizon returns, and PMEs sliced by strategy, vintage year, and geography.

Our global edition also includes preliminary data for Q4:
get our free benchmarks
 
 
Thematic Research  

Chinese Tech Conglomerates' Split Expected to Shake Up VC

China's internet sector is looking to rebuild after a yearslong crackdown has shaken VC investor confidence.

The breakup of Alibaba into six units could pioneer a new roadmap and test the nation's revamped IPO system.
 
2022 VC exits in Greater China held strong in count, value fell.

Meanwhile, the Chinese government has been feeling increased pressure to boost a pandemic-battered economy, which should lead to softened policies.

Our note explores how the restructuring of giants like Alibaba and JD.com could impact the region's VC market:
read the free research
 
 
Webinars & Events  

We're hosting a pair of webinars this month as part of a special series examining the leveraged loan and private credit landscapes in the US and Europe.

You can register here for Tuesday's Europe-focused session and watch a free recording of this week's US-focused session here.
  • April 25: We'll be participating in Morningstar's Fintech Open House where you’ll be able to network with Morningstar Investment Conference attendees and the Chicago fintech community. Details here.

  • May 3: Persistent market headwinds, culminating in SVB's collapse, added to the pall of uncertainty in the US VC ecosystem in Q1. Our quarterly Venture Monitor webinar will dig into it all. Register here.

  • May 9: Our Tim Clarke will host a session at ACG's DealMAX examining the recent performance of and future outlook for middle market PE. Details here.

  • May 10: What is the future of VC exits? How can our new VC Exit Predictor tool support your deal-sourcing workflows? Register here to learn more.

  • May 11: Join us for a discussion centered on the new Morningstar PitchBook Global Unicorn Indexes. We'll cover valuation best practices, index construction methodology, and more. Details here.
 
In the News  
 
Our Robert Le on the myriad ways ChatGPT can impact crypto.

Our insights and data featured in the press:
  • Senior analyst Robert Le joins CNBC Crypto World to discuss the positive and negative impacts of ChatGPT on the crypto industry. [CNBC]

  • PE held up better than expected in Q1, but that might change as the year goes on. [Fortune]

  • SVB's undoing has particularly impacted investors' psyches, which is likely to have lasting ripple effects on startups seeking capital. [Fast Company]

  • European VCs are on pace for their worst fundraising year since 2015. [Bloomberg]

  • Banks are beginning to lend to PE firms again for their buyout deals. But direct lenders aren't going anywhere. [The Information]

  • With the collapse of SVB, venture debt is drying up. [Fortune]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team.
 
ICYMI  

Highlights from our other recent research:

Market updates
Thematic research
Public Comp Sheets and Valuation Guides
Coming next week (subject to change)
  • Global M&A Report
  • The Decline of Unicorn Acquisitions in a Conservative M&A Market
  • Value-Based Care Investor's Guide
  • ETR: Annual Insurtech Overview
  • ETR: Enterprise Fintech Report
 
A message from Anduin  
Empower lasting investor relationships in the private markets
Obsessed with efficiently connecting LPs and GPs, Anduin has helped onboard 25,000+ investors at 485+ funds and raise more than $45 billion globally.

A world-class investor experience begins with Anduin’s Data Room, a secure virtual promotion space that allows you to confidentially share and showcase information on your fund.

This experience continues with single-click access to Anduin’s Fund Subscription, an electronic subscription document platform with proprietary technology built to streamline onboarding and ensure seamless communication between all parties.

Learn more here
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