Fund focus: Ardian goes large

Asia is becoming a more significant part of Ardian’s world, in terms of fundraising and deal sourcing. Both could be seen to reflect a growing affinity with secondaries as a strategy among an investor group that is still relatively new to alternatives.

The private equity firm recently closed its eighth flagship fund – a fund-of-funds platform that will invest primarily in secondaries with smaller primary allocation – at $19 billion, including $5 billion for co-investment. It is the largest secondaries pool ever raised. Asian LPs account for 20% of the corpus, three times the share in Fund VII, which closed at $14 billion in 2016. Commitments were sourced from China, Japan, Korea, and Singapore.

Asian institutions typically turn to secondaries to fill a hole in their portfolios. Their initial exposure to private equity is through global buyout strategies and gradually they begin to appreciate the benefits of diversification generally and a less accentuated j-curve specifically. At the same time, program maturity is turning the same groups into more willing sellers of private equity assets. Last year, Ardian completed the largest-ever secondary transaction with the purchase of a $5 billion portfolio from Japan’s Norinchukin Bank. Two further deals of $1 billion and $700 million came in Greater China.

“Many Asian investors entered the alternatives space 10 years ago. Now they have portfolios and maybe their funds haven’t returned enough cash, so they need liquidity. There are also changes in regulation, changes in strategy, and they are familiar with secondaries, so they know there is a solution,” says Jason Yao, a Beijing-based managing director at Ardian.

According Greenhill, global secondary transaction volume reached $88 billion in 2019, the third consecutive record high. Growth was driven by the prevalence of large transactions with 23 deals of $1 billion or more completed. Various explanations are given for this trend. On the seller side, large institutions like pension funds and sovereign wealth funds are more active in the market than they were a decade ago, and $1 billion doesn’t seem so extravagant out of a $15 billion alternatives portfolio. On the buyer side, investors are becoming more creative in structuring and financing deals.

Ardian considers this space to be its sweet spot. “For those deals, the competition is less than in other parts of the secondary market. They are also more complex, with lots of funds and co-investments,” says Yao. “A lot of institutions want to have one buyer who can provide a range of solutions for their portfolio. We want to get close to LPs and bet on the solution and service rather than the price.”

So far, 2020 has been relatively inactive, with COVID-19 preventing investors from conducting due diligence. Even if they could access the assets, market volatility makes it difficult to get comfortable with valuations. Nevertheless, Yao is optimistic in the medium term: “In the next 6-12 months, we believe secondary deal flow will increase and the pricing will be better.”

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• Topics
• Fundraising
• Secondaries
• Secondaries
• GPs
• Asia
• Ardian
• Secondaries