Lecture on Private Equity From Limited Partners' Perspective

Introduction

• Apologies for speaker Anan not being able to join due to Visa issues.
• Lecture given by a partner at Triago based in New York.
• Focus on private equity from the lens of limited partners (LPs) instead of general partners (GPs).
• Utilizing a case study on endowments and foundations which is reflective of real-world issues faced daily.

Triago's Background

• Founded in 1992 by Antoan to raise capital for European General Partners looking to diversify their LP base.
• Offices in New York, Paris, and Dubai.
• First secondary transaction in 1999, leading to a dedicated secondary practice.
• Business split into two areas: raising capital for GPs (primary) and advising LPs on liquidity options (secondary).
• Works with middle-market firms across sectors like buyout, venture, real estate, mezzanine, and energy.

Speaker's Background

• Graduated from Princeton with a degree in Economics.
• Worked at JP Morgan and Merrill Lynch before joining Triago.
• Heads the secondary advisory practice in the U.S.

Case Study Overview

• Focus on Logo Endowment facing a 'denominator effect' where private equity constituted too large a portion of their portfolio.
• Portfolio manager considering secondary transactions to reduce exposure.
• Addressing issues like price, timing, and confidentiality in secondary sales.
• Concerns for board members: pricing, timing, confidentiality, reputational issues with GPs.

Secondary Market Considerations

• Markets have stabilized, yet sales still considered due to portfolio management and distribution commitments.
• Types of secondary sales: running own auction vs. contacting one buyer vs. using an agent.
• Each method's pros and cons regarding confidentiality, pricing, and efficiency.
• Role of agents in structuring and pricing transactions, maintaining confidentiality.

Buyer Perspective

• Types of buyers: funds of funds, dedicated secondary funds, other endowments, and foundations.
• Secondary funds seek mature assets for quicker distributions.
• Importance of accurate NAV and understanding potential discrepancies in pricing.
• Discussion on unfunded liabilities and total exposure in pricing models.

Pricing Factors

• Pricing in secondaries is inefficient; variability in discounts/premiums complicates depiction in percentages.
• Evaluation based on latest NAV reports, but also the importance of considering subsequent quarters' changes.
• Adjusted price vs. base price: understanding offers relative to total exposure.

Legal and Contractual Considerations

• Closing process: purchase and sale agreement, GP consent, challenges with right of first refusal (ROFR).
• Structured transactions as alternatives in restrictive situations.
• Legal and tax implications of structured transactions, especially in international contexts.

Future Trends and Market Evolution

• Speculation on the future of secondary markets: efficiency, liquidity, regulatory changes.
• Current primary focus on highly negotiated transactions due to GP control and information asymmetry.
• Discussions on fundraising trends in distressed, secondary investing, and mezzanine funds.
• Potential effect of the denominator effect resolving over time, still impacting future fundraising.

Concluding Remarks

• Addressing questions about methodologies, pricing, and fund structures.
• Insights into future of private equity secondary markets and challenges.
• Fundamental alignment between seller and agent in secondary transactions for optimal outcomes.