guide to the secondary market, 2015

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2015 Edition

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Guide to theSecondary Market

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Editorial Laura Kreutzer, David Smagalla, Hillary Canada, Yuliya Chernova, Alec Macfarlane

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ISBN# 1-934391-19-0/978-1-934391-19-8|Guide to the Secondary Market published May 2015 by Dow Jones & Company, Inc., located at 1211 Avenue of the Americas,New York, New York 10036. Dow Jones & Co. is a News Corporation company. Cover Price: $195. Contact [email protected]. Copyright 2015 by Dow Jones & Company, Inc.All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storageand retrieval systems without the express written permission of Dow Jones & Company, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completenesscannot be guaranteed. Dow Jones & Company, Inc., its officers, employees, or agents may hold positions in any of the securities mentioned herein.

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Guide to theSecondary Market

2015 Edition


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Guide to the Secondary Market [ 3 ]

I. IntroductionPreface 4By Laura Kreutzer, Assistant Managing Editor, Private Equity

Secondary Market Goes Mainstream, as Deal Volume Hits New High 6By Hillary Canada

Strong Pricing Brings Sellers to the Table, but Will the Market Overheat? 16By Laura Kreutzer

Secondary Market Posts Record Year in 2014, Although Estimates Vary 22By Laura Kreutzer

Secondary Market Timeline 24

Deal Volume and Fundraising, 2002-2014Real Estate Secondary Volume Continues Growth Trajectory 26By Hillary Canada

Secondary Buyers Prepare for Wave of Energy Fund Sales 27By Alec Macfarlane

Buy-Side Broker Boom Brings Risks and Rewards to Secondary Market 28By Laura Kreutzer

Secondary Market Offers Seed Funds an Exit Option but Few May Use It 29By Yuliya Chernova

Secondary Funds Continue to Reap Rewards of Strong Exit Market 30By David Smagalla

II. Sponsored Article

The Rise of Real Estate Secondaries 33By Andrei Brougham of Greenhill Cogent

III. Firm ListingsSecondary Market Buyer Listings 34

Secondary Direct Manager Listings 58

Intermediary Firm Listings 62

IV. Appendixes

A. Investors That Have Backed Secondary Funds 70B. Secondary Market Buyer, Interests Sought 74

C. Secondary Market Buyer & Direct Manager, Geographic Preferences 76

D. Secondary Market Intermediary, Types of Clients Represented 78

E. Secondary Market Intermediary, Average Size of Deals Represented 79

V. Indexes

Company Name 80

Contact Name 83

Roughly two outof three surveyrespondents saidthey anticipated2015 to be a recordyear for volume...Butother respondentssaw the blockbusteryear in 2014 as anoutlier, driven bythose large

portfolios, anddidnt expect thesame dynamicsto materializeduring 2015.

Secondary Market GoesMainstream, as Deal VolumeHits New High, p.6

Table of Contents


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Guide to the Secondary Market[ 4 ]

When we lastpublished thisreport a year ago,we marveled at how the secondary industry hadtaken on many of the same characteristics seen inthe industry back in 2007. Pricing for certainportfolios, particularly buyout funds, had onceagain approached aggressive levels, in somecases even hitting 100% of a portfoliosunderlying net asset value. At the same time, anabundance of capital available for secondarydeals and free-flowing cheap debt to finance themdrove an abundance of deal volume.

It was hard to imagine the market could get anymore ebullient. Yet, a year later, thats exactlywhat has happened. As 2015 progresses,

however, the forces that helped drive secondarydeal volume to record levels in 2014 alsoappear to be raising concerns among somebuyers that the market is getting overheated.For the first time in a long time, more secondarybuyers have begun to question whether themarket has entered a bubble, particularly forwhat they commonly refer to as flow funds, orstakes in megabuyout funds.

In this edition of the Dow Jones Guide to theSecondary Market, our survey results illustratesome of those emerging concerns, with some 94%of buyers surveyed characterizing the current

market as a sellers market. At the same time,more than three-quarters of buyers in this years

survey say they feel pricing is too high.

However, as the secondary market has diversified,buyers still point to pockets of deal flow wherepricing is often less efficient, such as in generalpartner restructurings and in more complextransactions involving portfolios of direct stakes incompanies or groups spinning out of largefinancial institutions. They also acknowledge thatalthough strong pricing puts pressure on futurereturns, it also attracts more sellers to the market.Even a bubble may have its benefits.

We hope that this edition of our secondary guide

will help illuminate emerging trends in the marketand also provide a useful resource for prospectivesellers and GPs who want to identify possiblebuyers for certain types of assets.

As always, we welcome your feedback on how wecan improve the content for future editions.

Sincerely,Laura KreutzerAssistant Managing Editor, Private EquityDow Jones & [email protected]@LauraKreutzer

Preface


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Roughly two out of three survey respondents said theyanticipated 2015 to be a record year for volume as well,

citing good pricing for sellers, more opportunities forGP restructurings and an aging set of funds in Asiapotentially fueling supply. The survey reflectedresponses from 57 buyers, including some of theindustrys largest players.

Other respondents saw the blockbuster year in 2014 asan outlier, driven by those large portfolios, and didntexpect the same dynamics to materialize during 2015.

Eric Zoller, partner and co-founder of secondary adviserSixpoint Partners, said he was skeptical 2015 would bemarked by the same amount of big ticket transactions. Theexception may be in real estate secondaries, where Mr.

Zoller and others said they anticipated increased activityand larger portfolios to manifest.

Pent-Up DemandThe prevalence of large transactions meant that a handfulof buyers accounted for a disproportionate percentage ofdeal volume, according to Mathieu Dran, a managingpartner at placement agent Triago.

Other players were equally eager to get deals done, saidMr. Dran, adding those buyers in the market who didntdeploy as much capital as they would have liked in 2014have greater incentive to make investments in 2015.

By HILLARY CANADA

In additionto being a record year forsecondary volume, 2014 may bethe year that finally smashed some lingering myths aboutthe secondary market.

The idea that the market would attract forced sellers hasbeen fading for years, and all but completely disappearedduring 2014 as limited partners, flush with cash from therecord distributions of their general partners, shoppedportfolios large and small as a way to refine their holdings.

Meanwhile, the dynamics surrounding a nascent part of themarket, general partner restructurings, slowly have started toshift. No longer the exclusive province of the lumberingzombie fund, restructurings and the selling of tail-end assetsare slowly becoming more commonplace among well-performing GPs, said industry experts.

Those two trends, of portfolio management and of GPsseeking solutions for aging funds, are expected to drivedeal flow in 2015, but secondary buyers polled by DowJones in our annual secondary survey were divided overwhether secondary volume in 2015 would match orexceed 2014 levels.

Deal value, which hit record levels in 2014 (see page 22 forthe various volume estimates), was driven partly by roughly adozen billion-dollar-plus transactions that came to market,including portfolios from General Electric Co.s GE Capital,Pennsylvania Public School Employees Retirement Systemand J.P. Morgan Chase & Co.

Secondary Market Goes Mainstream,as Deal Volume Hits New High

What Percentage of Secondary DealsYou Do is Due to:

Source: Guide to the Secondary Market, 2015 edition

8%0

10

20

30

40

50%

MedianMean

OtherGPrecapitalizations

(or fundrestructurings)

Their use asa portfolio

management tool

Regulatorychanges

Economicconcerns of

inexperiencedinvestors/distressed

24% 23%25%

46% 45%

20%

15%18%

20%

29%

Do You Expect This Year to Be a Record Yearfor Secondary Deal Volume?


8%0

100%

NoYes

201320142015

32%

68%

34%

66%53%

47%


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Roughly two out of threesurvey respondents said

they anticipated 2015

to be a record year

for volume...But other

respondents saw the

blockbuster year in 2014

as an outlier, driven bythose large portfolios,

and didnt expect the

same dynamics to

materialize during 2015.


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No sophisticated institutional investor today thinks aboutprivate equity commitments as just buy and hold, WilsonWarren, a partner at New York-based Lexington Partnerstold Private Equity Analyst in April. They know that theywill have to do something actively with their portfolio overtime, or the portfolio will end up being too disparate.

Dont Bank On Financial InstitutionsRegulatory changes in the U.S. and Europe drove anaverage of about 29% of transactions, according to

survey respondents, in line with last years figures. Butindustry experts predict that well is close to running dry,as those financial institutions that continue to hold privateequity assets on their balance sheets cling tightly tothose investments.

Banks and insurance companies have been creative indelaying sales in hopes that regulation would change,said Mr. Zoller.

A two-year extension that gives banks until 2017 to complywith the Volcker rule in the U.S. means that such

For its part, Triago estimates transaction volume in2015 will reach between $35 and $40 billion, butpredicts fewer large transactions and a widerdiversification of buyers.

Roughly 44% of survey participants said they saw newcompetition for deals during 2014, from limited partners

including family offices, endowments and foundations.The massive wave of distributions that has washed overLPs portfolios may serve to accelerate secondary buyingamong LPs as they seek to invest capital quickly.

Through the first quarter, Mr. Dran said Triago already hadtransacted with between 12 and 14 unique buyers amuch higher figure than usual.

In a given year, we usually end up transacting with 22 to25 distinct buyers, he said, adding that interested buyersrun the gamut from dedicated secondary funds, funds offunds, insurance companies, private offices and others.

The big theme for all LPs these days is to try to optimizethe deployment rate, said Mr. Dran. Theyre eager to dosecondary deals. Theyre clearing the deck of massiveamounts of money. He added those types of buyers wouldstick primarily to simpler and smaller transactions.

As it did in last years survey, portfolio managementremains the primary driver of secondary deal volume,accounting for an average of 46% of deal flow among thisyears survey respondents, up from an average of 40% in asimilar survey conducted last year.

Many sellers are working on portfolio solutions, but arewaiting for the year-end numbers or even the March 31

numbers to come through, said Benot Verbrugghe,head of the U.S. office at Ardian. We think that [in] thesecond quarter, you will start to see new transactionscoming in the market.

Shifts in strategy, staffing changes and an overallappetite to rebalance were among the underlyingmotivators for some sellers in 2014, said Mr. Zoller. Asthese types of pruning transactions have become morecommonplace, Triago calculated that the averageportion of a portfolio that will end up in secondaries isclose to 20%.

Do You See Competition FromNew Sources for Deals?


Yes

No56%

44%

Did You Participate in Any GP or FundRestructuring Deals Over the Past Year?


Yes

No

40%

60%

Percentage of Funds Going to Small/Large Deals


8%0

20

40

60

80

100%

Prior FundCurrent Fund

Stakes With NAVsLarger Than $15M in Size

Stakes With NAVsLess Than $15M in Size

50%

70%

55%

75%

Median Percentage


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since 1997 and leads secondary investments in:

Buyout and Venture Capital partnerships

European, US and Asian assets Special situations (unfunded positions, direct secondaries)

For further information please contact Andr Aubert ([email protected])

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LGT Capital PartnersSecondaries House of the Year 2014


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Select Secondary Funds in the Market or Recently Closed

Fund Name Investing Firm Name Fund Region Target (M)Total Amt.

Closed (M)

LP Secondaries

Adams Street 2013 Energy Fund LP Adams Street Partners U.S. $500.0 N/A

Ant No. 2 Greater China Secondary Fund Ant Capital Partners Co. Asia/Pacific $150.0 N/A

Ardian Secondary Fund VII LP Ardian Global $9,000.0 N/A

AXA Secondary Fund VI LP Ardian Global $4,000.0 $6,000.0

Bowside Capital Fund III LP* Bowside Capital U.S. $35.0 $37.7

Capital Dynamics Secondaries Fund IV LP Capital Dynamics U.S. $500.0 $107.0

Coller International Partners VII LP Coller Capital Global N/A N/A

European Secondary Development Fund V LP Arcis Group Western Europe $478.8 N/A

DB Secondary Opportunities Fund III LP Deutsche Asset & Wealth Management Global N /A $1,650.0

Euro Choice Secondary Fund Akina Partners Europe 200.0 224.0

Fort Washington Private Equity

Opportunities Fund III LP*

Fort Washington Investment Advisors U.S. $150.0 $150.0

Global Market Fonds Secondary V RWB PrivateCapital Emissionshaus AG Global N/A N/A

Greenspring Secondaries Fund I LP* Greenspring Associates Global N/A $87.0

Idinvest Secondary Fund II* Idinvest Partners Western Europe $258.8 $283.9

Industry Ventures Partnership Holdings III LP* Industry Ventures U.S. $100.0 $170.0

Landmark Equity Partners XV LP* Landmark Partners Global $2,500.0 $3,250.0

Lexington Capital Partners VIII LP Lexington Partners Global $8,000.0 $10,100.0

Lexington Middle Market Investors III LP* Lexington Partners U.S. $750.0 $1,070.0

Mantra Secondary Opportunities Mantra Gestion Global $55.8 $59.2

Montauk TriGuard Fund VI LP* Montauk TriGuard U.S. $500.0 $500.0

Pantheon Global Infrastructure Fund II LP* Pantheon U.S. $700.0 $1,000.0

Pantheon Global Secondary Fund V LP Pantheon Global N/A $1,118.7

Partners Group Real Estate Secondary2009 (Euro) SCA SICAR*

Partners Group Western Europe $750.0 N/A

Partners Group Secondary 2015 LP Partners Group Global $3,024.8 N/A

Permal Private Equity Opportunities V Permal Group U.S. $500.0 $178.2

Pomona Capital VIII LP* Pomona Capital Global $1,300.0 $1,750.0

Segregated Fund I* Northleaf Capital Partners Global N/A $150.0

SL Capital Secondary Opportunities Fund II SL Capital Partners U.S. $200.0 $171.0

Stockwell Secondary Holdings LP* Stockwell Secondary Holdings LP U.S. $364.1 $364.1

Strategic Partners VI LP* Blackstone Group Global $3,500.0 $4,400.0

Unigestion Secondary Opportunity III Unigestion Global $340.2 N/A

Secondary Direct/Portfolio

17Capital Fund 3 LP* 17Capital Western Europe 450.0 500.0

ACG European Secondary Fund ACG Capital Eastern Europe/CIS $206.6 N/A

Akkadian Ventures Annex III LP* Akkadian Ventures U.S. N/A $5.6

Akkadian Ventures III LP* Akkadian Ventures U.S. $35.0 $69.0

Azini 3 LLP* Azini Capital Partners U.S. N/A $100.0

Cipio Partners Fund VII Cipio Partners Western Europe $224.0 N/A

Core Capital I LP* Core Capital Partners Western Europe $76.9 N/A

European Secondary Opportunities II LP Seligman Private Equity Western Europe $103.2 $36.3

continued on next page >


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Partners and AlpInvest Partners. J.P. Morgan had said itsplan to spin off One Equity wasnt in response toregulatory pressure, but rather was a reflection of thefirms uneven returns and uncertainty over where the unitfit within the bank, The Wall Street Journalreported.

Lexington also was behind a deal to buy a substantialportion of a $1.5 billion commitment Citigroup Inc. madeto a fund managed by Metalmark Capital. Citigroup movedto shed its ownership stake in Metalmark in late 2013.

One secondary buyer estimated the remaining value ofbank-held private equity assets in the U.S. and Europe atroughly $50 billion. That has dwindled from 2014, when

professionals estimated that there were between $60billion and $85 billion of assets left to sell. Clearly a lotof banks have sold at this point, said Stephen Sloan, amanaging partner at secondary intermediary GreenhillCogent. We dont expect them to be a growing part ofthe market, though they do still have assets to sell.

institutions have even more runway to delay a sale.Meanwhile, in early 2015, bank regulators issued guidanceon the Volcker rule that appears to allow foreign banksoperating in the U.S. more leeway to hold onto certaintypes of private equity investments.

That said, banks that have held onto assets may have anincentive to sell thats driven more by the generouspricing available than by looming regulatory threats, saidMr. Dran. Its a good time to rationalize assets and cashout, he said.

A group of European lenders, including StandardChartered PLC, HSBC Holdings PLC and Unicredit SpA,

were among those who sold large private equity fundportfolios or initiated plans to do so last year.

Perhaps the highest-profile transaction in the bank spacelast year came as J.P. Morgan agreed to sell roughly halfits stake in buyout arm One Equity Partners to Lexington

Fund Name Investing Firm Name Fund Region Target (M)Total Amt.

Closed (M)

Secondary Direct/Portfolio (cont.)

Founders Circle Capital I LLC* Founders Circle U.S. N/A $160.0

Founders Circle Capital Opportunity Fund I LLC* Founders Circle U.S. N/A $35.0

Headlands Capital Secondary Fund II Headlands Capital Global N/A $80.0

Inveni Secondaries Fund II Follow On Ky* Inveni Capital Western Europe $12.5 N/A

Inveni Secondaries Fund II Ky* Inveni Capital Western Europe $81.9 N/A

Inveni Secondaries Fund III Ky* Inveni Capital Western Europe $77.5 N/A

Jasper Ridge Private Opportunities LP* Jasper Ridge Partners U.S. $177.5 $177.5

JDPT Partners Group (Secondary) LP* Partners Group Western Europe $100.0 N/A

Leerink Revelation Healthcare Fund I Leerink Revelation Partners U.S. $175.0 $167.7

Lombard Odier Secondary Fund II Lombard Odier Darier Hentsch & Cie Western Europe $25.0 N/A

*Fund held final closing. Sources: Dow Jones LP Source, Guide to the Secondary Market,2015 edition

Select Secondary Funds in the Market or Recently Closed (cont.)

BANKS AND INSURANCECOMPANIES HAVE

BEEN CREATIVE INDELAYING SALES INHOPES THAT REGULATION

WOULD CHANGE.

Eric Zoller, partner and co-founder of secondariesadviser Sixpoint Partners


14/92


Restructurings Gain Popularity

Despite challenges posed by trying to engineera fund restructuring, the number of such transactionsand the number of buyers willing to attempt themcontinue to increase.

Landmark Partners estimates that the number ofrestructurings increased 35% year-over-year in 2014,with the dollar volume of those transactions rising by140%, according to Partner Ian Charles.

Although GP restructurings accounted for an average of20% of deal volume among this years surveyrespondents, some 60% of our survey respondents saidthey had participated in a general partner or fund

restructuring in 2014.

So-called zombie funds are becoming a smaller part of themarket, said Mr. Charles. Funds with brand-name GPs arenow being restructured to provide early, attractive liquidityfor LPs who want it, and better alignment and incentivesfor LPs that want to stay in the fund and GPs that want toimprove dynamics around a predecessor fund, he said.

Landmark led one such deal for a 2006-vintage fundmanaged by Intermediate Capital Group, a credit specialistthat focuses on North America and Europe. A portion ofthe funds existing investors opted to roll over proceedsinto the deal, which was financed in part by a small

syndicate of investors Landmark assembled. ICG is in themarket seeking 2.5 billion for a new mezzanine fund,Private Equity Analyst reported in January.

HarbourVest, Morgan Stanley Alternative InvestmentPartners and Coller Capital are among the other investorswhich tackled restructurings and financed spinouts duringthe past 24 months, according to data provider Preqin Ltd.

Yann Robard, who heads secondaries and co-investments atthe Canada Pension Plan Investment Board, said these typesof deals, which he calls GP solutions, carry some of thesame myths and stigmas the traditional secondary marketbattled in the 1990s.

Buyers Become Sellers

Premium pricing also inspired some historical buyers,including funds of funds, to sell portfolios, allowing them toreturn cash more expediently to their own limited partners.Private Advisors, Adams Street Partners, HarbourVestPartners and Pantheon were among the funds of fundsthat opted to explore options on the secondary marketduring the past 18 months.

[Funds of funds] have a view on pricing for most assetsthey own, and if someone in the market is pricing itmaterially higher, theyre willing to sell, said GreenhillCogent Managing Director Brian Mooney.

Canada Pension Plan Investment Board, one of the

industrys most prominent secondary buyers, is amongthose taking advantage of favorable pricing, exploringthe potential sale of a portfolio of stakes valued atbetween $1 billion and $1.5 billion, Private EquityAnalyst reported in April.

What Percentage of Secondary Assets Purchased Last Year Fell Outside of Traditional PE or VC?

Numbers do not add up to 100% due to rounding. Source: Guide to the Secondary Market, 2015 edition

None

1% to 10%

11% to 20%

21% to 30%

31% to 40%

41% to 50%

More Than 50%201320142015

57%

3%

9%

6%3%3%

20%

59%

16%

6%

9%

9%

62%

4%

8%4%

23%

Percentage of Funds Going to U.S./Non-U.S. Deals


8%0

20

40

60

80

100%

Prior FundCurrent Fund

Non-U.S. DealsU.S. Deals

70%

35%

70%

35%

Median Percentage


15/92


with right kind of manager who has a good relationshipwith LPs and can balance the needs and objectives ofeveryone involved, said Mr. Charles.

Theres still a lot of adverse selection in the market, saidMr. Mooney of Greenhill Cogent. The deals are complexand theres a lot of conflict involved, but if you can constructa solution that allows the LPs to have an option thats betterthan the status quo, then it can be a win for everyone.

Additionally, it would appear that in complicatedtransactions such as restructurings, size matters. In smallerrestructurings, people are hesitant to get involved. Its thesame amount of work, the execution risk is higher, and thepayoff isnt as great, said Mr. Zoller.

The overall percentage of deals being evaluated is higher,but the overall number of deals being executed is probablylow, Mr. Zoller added. More and more are getting done,but the amount is less than people think.

There was skepticism, and it was vulture-like from time totime, but that has completely disappeared now, he said,adding that as more these transactions take place, theindustry will get more comfortable with them.

Although restructurings are becoming more commonplace,industry experts agreed their complexity can be off-puttingand such deals can still take unexpected turns.

HarbourVest, for example, agreed earlier this year to buy

stakes in two Doughty Hanson funds, committing anadditional 65 million to a planned fund. DoughtyHanson, plagued by departures and meager returns,announced in April it was abandoning efforts to raise anew fund and would focus solely on managing out itsremaining assets, Dow Jones sister publication PrivateEquity News reported.

For anyone to be successful in the fund restructuringspace, theyve got to have creativity, flexibility and partner

Brian Mooney,managing directorat Greenhill Cogent

THERES STILL A LOT OF ADVERSESELECTION IN THE MARKET...The deals are

complex and theres a lot of conflict involved, but if you can constructa solution that allows the LPs to have an option thats better than the

status quo, then it can be a win for everyone.


16/92


Respondents were nearly equally divided over whethervolume would increase, decrease or stay the same in EasternEurope and Russia, which has been plagued by low oil pricesand sanctions stemming from its conflict with Ukraine.

Nearly a third of investors expected some increase in

activity in the Middle East. Abu Dhabi Investment Authorityreportedly was shopping a portfolio valued at roughly $2billion in 2014, Bloomberg Businessweek reported.

A Fundraising BonanzaSecondary buyers are well capitalized to take advantage ofportfolios coming to market, after a robust year for fundraising.

Lexington recently wrapped up its latest core secondary fundwith $10.1 billion, ranking it as the largest such fund everraised. In 2014, meanwhile, several of the industrys biggestnames, including Ardian, Blackstone Groups Strategic

Deals From Further AfieldEven as secondary buyers vie for more typical fundportfolios, they are looking increasingly beyond traditionalprivate equity to pick up interests in other asset classes,including infrastructure, credit, natural resources and realestate. This year, 21% of survey respondents saw more thanone-fifth of the assets they purchased last year fall outside

of typical private equity or venture capital, up from 15% ofsurvey respondents the previous year and 12% ofrespondents to a similar survey in 2013.

One asset class that experienced growth in secondary volumelast year was real estate, which accounted for an estimated10% of total secondary deal volume for the year, according toa report by Greenhill Cogent. (For more on the environment forreal estate secondaries, see the article on page 26.)

Although the locales of sellers and fund stakes are slowlywidening, survey respondents predicted a majority of theirfund would be used to purchase U.S. stakes.

Respondents predicted they would invest a median of 35% oftheir current fund in non-U.S. deals, roughly the same percent-age as their prior funds, according to the survey data. That fig-ure also is in line with the results from last years survey.

Industry participants largely expect volume in the U.K.,Japan, Brazil, Latin America and Australia to stay the sameyear over year.

Japan was home to one of the dozen giant portfolios thathit the market in 2015, as Mizuho Financial Group agreedto sell a portfolio of about $1 billion worth of stakes toLexington Partners.

Select Secondary Deals, 2014-2015

TransactionSelling Institution Type Size (M) Status

Aberdeen International Inc. Direct Portfolio $29 Landmark Partners bought the portfolio in 2014

California Public Employees Fund Portfolio N/A The pension system hired UBS AG to help sell fund stakes asRetirement System it seeks to reduce the number of relationships in its portfolio

Canada Pension Plan Investment Board Fund Portfolio $1,500 Recently came to market

Citigroup Inc. Fund Portfolio $1,200 Bank sold remaining stakes in funds managed by Metalmark Capitalto Lexington Partners

Diamond Castle Holdings Restructuring/ N/A Goldman Sachs Asset Management and Intermediate CapitalGroup Stapled Secondary funded a restructuring of the Diamond Castle Partners IV LP

in late 2014Fleming Family & Partners Fund Portfolio $140 Coller Capital purchased the portfolio in early 2015

GE Capital Fund Portfolio $1,300 Ardian purchased the portfolio in 2014

Magnum Capital LPs Restructuring/ N/A In 2014, HarbourVest Partners and five others bought stakes in theStapled Secondary firms 2007-vintage fund and pledged fresh capital to its new fund

Mizuho Financial Group Fund Portfolio $1,000 Lexington Partners purchased the portfolio in late 2014

Montana Board of Investments Fund Portfolio approx. $126 Pension system disclosed it had sold eight fund stakes but did notreveal the identity of the buyers

New Mexico State Fund Portfolio N/A In late 2014, the council said it was considering the sale of stakesInvestment Council in 25 funds managed by 15 different GP

Pennsylvania Public School Fund Portfolio $1,750 Ardian purchased the portfolio in late 2014Employees Retirement System

State of Wisconsin Investment Board Fund Portfolio $203 In 2014, the board said it was considering the sale of some$203 million in legacy fund stakes

Sources: Dow Jones Private Equity Analyst, Dow Jones Private Equity News

0-1 year

1 year

1-2 years

2 years

20142015*

How Long Did It Take You to Raise Your Last Fund?

*Numbers do not add to 100% due to rounding. Source: Guide to the Secondary Market, 2015 edition

32%

41%

23%

33%

5%

19%

5%

43%


17/92


Partners unit and Landmark Partners, built up large war chests,driving total secondary fundraising to $23.91 billion for theyear, up nearly 38% from $17.30 billion a year earlier,according to data provider Dow Jones LP Source, which, likethe publisher of this supplement, is owned by Dow Jones.

Strong performance generated by private equity has helpedcreate a welcoming environment for those secondary firmspitching new funds. Roughly 70% of respondents to oursurvey described their most recent fundraising as veryeasy or fairly easy, with around the same percentagecompleting their funds in about a year or less.

As more large players, including Ardian, Coller Capital andPartners Group, seek capital in 2015, however, someindustry professionals have expressed doubts about theability of firms to buy quality assets at competitive prices.

Others argue the amount of capital available to buysecondary stakes is still a fraction of the overall amount ofassets available for purchase.

Theres only two years of buying power held by secondarybuyers, said an executive at one large secondary firm. n

Laura Kreutzer contributed to this report.

Very Easy

Fairly Easy

Somewhat Difficult

Very Difficult

20142015

Raising Your Last Fund Was:


57%

13%

27%38%

3%

52%

10%

How Do You Expect Secondary Deal Volume to Trend in the Following Regions?


8%0

100%

Stay the SameDecreaseIncrease

AfricaMiddle EastLatin America(Ex. Brazil)

BrazilAustralia/New Zealand

Asia(Ex. Japan)

JapanEasternEurope/Russia

ContinentalEurope

UnitedKingdom

39%

61%50%

50%

39%

35%

26%

70%

30%

46%

54%

74%

26%

74%

26%

83%

17%

59%

32%

59%

36%

9% 5%


18/92


their equity by adding debt to their deals or layering itonto their funds. In addition, secondary buyers have moremoney than ever to spend, thanks to several consecutiveyears of robust fundraising.

In 2014, secondary buyers raised a total of $23.91 billionfor new funds, surpassing the $17.30 billion raised a yearearlier but falling short of the $26.33 billion recordamount raised in 2012, according to Dow Jones LPSource, a data provider that, like this publication, isowned by Dow Jones. At the same time, institutionalinvestors, including pension funds such as the CanadaPension Plan Investment Board and sovereign wealth

funds such as the Abu Dhabi Investment Authority, havestepped up their secondary buying activity.

The confluence of strong performance, cheap debt andample capital has helped create one of the strongestsellers markets the secondary industry has ever seen,according to the latest Dow Jones survey of secondarybuyers. Among this years survey respondents, 94%characterized the current market as a sellers market,roughly in line with buyer sentiment in 2007.

Theres nobody that needs to sell, so theres no pressure fortransactions to happen, said Brian Mooney, a managingdirector with intermediary Greenhill Cogent. Buyers have to

price to a level where they can convince people to sell.

The lack of distressed sellers in the market andcompetition among buyers for deals has driven pricing to alevel that concerns many buyers. Overall, 78% of buyers inour survey feel that pricing is too high in the currentmarket, the highest percentage of buyers that felt that wayabout pricing in at least the past five years of this survey.

By LAURA KREUTZER

Secondary deal volume hit a recordlevel for the secondyear in a row in 2014 as strong pricing brought more sellersto the negotiating table. And while secondary buyers and

intermediaries expect strong pricing will continue to drivedeal flow in 2015, many say they will tread carefully.

Youve got to be very disciplined and like what you seeand, even then, you have to lean into it a little bit, said asenior executive at one large secondary investor.

Many of the forces that helped drive pricing and dealvolume in 2014 remain in place as 2015 unfolds.Favorable exit conditions, including strong public-marketperformance, have helped private equity and venturecapital funds generate strong returns over the past 12months. An abundance of cheap debt has also givensecondary buyers more firepower and boosted returns on

Strong Pricing Brings Sellers to the Table,but Will the Market Overheat?

How Would You Classify the Current Market?

ource: Guide to the Secondary Market, 2015 edition

0

100%

A Sellers MarketA Buyers Market

2007201320142015

6%17%

47%

8%

94%83%

53%

92%


19/92

At Ardian, we strive to deliver quality investment performancefrom the $50bn of assets we manage or advise for clients.We do this with a relentless focus on generating returns

that are durable and sustainable in the long term. The valuecreated and results achieved is shared with our investors, butalso our partners, investee companies and their employees.That makes a difference.

more information on www.ardian-investment.com

WHAT COUNTS ISNOTJUST WHATYOU DO,

BUTHOWYOU DO IT.

Excel lence. Entrepreneursh ip. Loyal ty.

Paris, London, New York, Frankfurt, Zurich, Singapore, Milan, Beijing, Luxembourg, JerseyAsofDecember2014,

Ardia

nhas

$50bnofassetsundermanagement


20/92


Public pension funds were the most likely to walk away from adeal over pricing, with 38% of survey respondents indicatingthey lost deals from public pensions over pricing, followedclosely by endowments and foundations at 35%. Banks andinsurance companies were the least likely in our survey towalk away from a deal with secondary buyers over pricing.

The public pension plans wanted to test the pricing in themarket to see how much they could get from the positions,but they were also loath to take a loss, said Mr. DePonteof Probitas Partners. They werent necessarily committed.They were price shopping.

Secondary buyers in our survey were more likely to payup for buyout funds than venture funds, keeping with atrend also seen in last years survey. Among surveyrespondents, 62% said they paid more on average forbuyout funds than they did the previous year, comparedwith 42% of respondents that paid more on average forventure funds. Both fund types saw a higher percentageof survey respondents pay more this year than those

buyers responding to a similar survey last year.Average high bids for buyout funds hit 95% of a fundsunderlying net asset value during the second half of2014, according to a pricing analysis from GreenhillCogent. That is down slightly from the 100% of NAVthat average high bids hit during the first half of 2014but still below the premiums to NAV that average highbids for buyout funds hit in 2007. By contrast, averagehigh bids for venture funds were only 80% of NAVduring the second half of 2014, compared with 82% ofNAV during the first half.

On average, 24% of survey respondents in our survey paid

prices for buyout funds that were equal to those fundsunderlying NAV, compared with only 11% of respondentsthat paid par for buyout fund interests in last years survey.

As this report was going to press, buyers were pricingassets off of valuations as of either Sept. 30 or 2014 year-end, with the anticipation that March 31 valuations wouldbe higher, according to buyers and intermediaries.

When the market turns, then youll assume that the NAVswill be lower, said Kelly DePonte, a managing director atplacement agent Probitas Partners. If youre a secondaryplayer thats investing to make a profit, youve got to begetting a bit more gun-shy right now.

Because of the lack of distressed-driven transactions,sellers have no problem walking away from deals if buyerscant match their price expectations. Among this years

survey respondents, 79% said a seller had walked awayfrom a deal over price concerns, a drop from the 88% ofrespondents to last years survey that saw a seller walk away.

Percentage of Sellers That Walked AwayOver Pricing, by Seller Type

*Includes family offices, funds of funds, general partners and high-net-worth individuals.Source: Guide to the Secondary Market, 2015 edition

8%0

100%

NoYes

Other*PublicPensions

CorporatePensions

InsuranceCos.

Banks/Financial

Institutions

Endowments/Foundations

65%

77%

35%23%

77% 73%

62%

73%

23% 27%38%

27%

Has a Seller Walked Away From a DealOver Price Concerns?


8%0

100%

NoYes

201320142015

21%

79%

12%

88% 86%

14%

Secondary Transactions Are Priced:

*Numbers do not add up to 100% due to rounding. Source: Guide to the Secondary Market, 2015 edition

8%0

100%

On Average, About RightToo LowToo High

20132014*2015

22%

78%

3%

29%

69%

55%

45%


21/92


lower than their prior fund, while 86% projected that theIRR would be roughly the same. Among participants in lastyears survey, 22% said they anticipated lower returns fromtheir current fund.

The average expected return from secondary fundsacross all survey respondents remains fairly high at 20%,

Among this years survey respondents, 11% said they paidprices for venture funds that were equal to or above theunderlying NAVs for those funds. By contrast, all of thebuyers that responded to a similar survey last year saidthey paid less than NAV for venture fund stakes.

Secondary buyers and intermediaries say improved perfor-

mance among venture capital funds over the past 18 months,thanks partly to large infusions of capital from late-stageinvestors and a favorable environment for venture-backedIPOs, has helped lure some buyers back to the space. For the12 months through Sept. 30, venture funds generated a24.5% pooled end-to-end net return, outpacing the 18.1%produced by private equity funds over the same period,according to data from consultant Cambridge Associates.

Now that prices are higher on the buyout side, you seemore secondary buyers try to tap into new markets, somore are looking into venture to stay away from highpricing in the buyout markets, said the head of secondaryinvestments at one global fund of funds.

High Prices Lower Return ExpectationsStiff competition and high pricing for deals has forced somebuyers to lower their future return expectations, althoughperhaps not as much as buyers did in last years survey.

Among this years survey respondents, 14% said theyexpect the internal rate of return of their current fund to be

Primary Funds of Funds | Secondary Funds

Customized Private Equity Portfolios | Co-Investments

PRIVATE EQUITYSMALL MARKET SPECIALISTS

BOSTON The Prudential Tower | 800 Boylston Street, Suite 1325 | Boston, MA 02199 | T 617.587.5300

NEW YORK 900 Third Avenue, 27th Floor | New York, NY 10022 | T 212.418.6500

WWW.PERMALCAPITAL.COM

In the Past Year, on Average Did You Pay Morefor Secondary Deals?

*Numbers do not add up to 100% due to rounding. Source: Guide to the Secondary Market, 2015 edition

0

100%

NoYes

201420152014*2015

62%56%

42%37%

38%45%

58%63%

LBO VC


22/92


Weve seen leverage at the smaller end of the market not just the 50-to-100 fund portfolios but the five-to-20fund portfolios, he said.

Secondary buyers can employ leverage in several differentways. Some may borrow from a third-party lender to helpfund the purchase of a secondary portfolio, much in the

way a buyout firm may use debt to help finance thepurchase of a portfolio company. The debt helps enhancethe return on the secondary buyers equity investment in adeal, although early cash flows generated by the portfoliooften end up servicing the debt before they get distributedback to the secondary fund and its investors. Adding debtto a transaction can also enhance a firms buying power,allowing it to fund a deal on its own rather than having tosplit a transaction among multiple buyers, according tointermediaries. Among respondents in this years survey,9% said they had employed debt in transactions.

Far more of the buyers in our survey, 31%, employed debt atthe fund level as a cash management tool. Blackstone Groups

Strategic Partners Fund Solutions unit and Lexington Partnersboth have used debt at the fund level to manage cash flows.

Layering debt onto a secondary fund allows a firm to financeearly deals outside of a funds balance sheet so that investorsthat commit to later closings of a fund dont benefit from earlydeals at the expense of investors that signed on earlier in thefunds life. Debt facilities at the fund level tend to have lowerinterest rates than those that are placed on individualportfolios because they are typically perceived as less risky.

compared with a 19% average expected return amongbuyers who responded to last years survey.

Continued high exit volume, combined with an abundanceof cheap debt allowing buyers to enhance the returns ontheir equity investments, may be boosting more buyersconfidence that they can still meet return expectations,even in a pricey market environment.

Others, however, are taking steps to adapt to what theyexpect will be a more challenging return environmentgoing forward.

SL Capital Partners, for one, recently lowered theproposed hurdle rate, the return threshold a fund mustreach before a sponsoring firm can start pocketingprofits from the fund, for its newest secondary pool to12%, according to a recent report from sisterpublication Private Equity Analyst. Although 12% is stillrelatively high, it is modestly lower than the 14% hurdlethe firm set on its first secondary fund, a $146 millionvehicle closed in 2014.

Debt Goes MainstreamBuyers and intermediaries say more secondary buyers than

ever are turning to the debt markets in their quest tomaintain high returns in a competitive pricing environment.

Leverage is very much a strategic decision at themoment, said Gregg Kantor, who works on the fundfinance team at Investec Bank PLC, adding that evensecondary firms that havent previously used leveragehave started to educate themselves and their seniorpartners about its use. Theres a mindset shift.

He added that secondary buyers and the limited partnersthat back them have become more comfortable with theuse of leverage in secondary deals and funds, even insmaller transactions.

0

5

10

15

20%

Median (%)Mean (%)

Net IRR Expected From Future Funds


17%8%

20% 20%

Is This IRR Higher, Lower or the Sameas That of Past Funds, on Average?

Same

Lower

Higher14%

86%

In the Past Year, Did You Pay Below, Equalor Above NAV for Deals?

ource: Guide to the Secondary Market, 2015 edition

0

100%

AboveEqualBelow

2014201520142015

76%

89% 89% 100%

24%

11% 7%

LBO VC

4%


23/92


deals typically provide capital for new deals or a new fundin addition to purchasing stakes in older portfolios.

Stapled secondaries can be risky, however, since it is oftenharder to determine how well the general partner will do

with future investments than it is to assess a portfolio ofdeals the firm has already backed. But so far, it is a riskthat many buyers seem willing to take.

A More Rational Mindset?Although pricing has remained strong into 2015, buyersand intermediaries say a softening in the U.S. economy ora public market correction could prompt buyers to pricebids more conservatively and potentially take somemomentum out of the market.

One of the reasons pricing is so high is that peopleanticipate that distributions and values will continue to go

up, said Brent Nicklas, managing partner and chiefexecutive of Lexington Partners, which in April wrapped upits eighth fund at its $10.1 billion cap. The moment thatchanges, youre going to see the bid-ask gap open up.

Others, however, say they see little chance of a marketcorrection anytime soon.

Financial markets have very short memories, and the onlyway they move is because theres something bighappening, said Mr. Moerel of AlpInvest. Are people goingto be become more rational? I think something big needs tohappen, and right now theres nothing on the horizon.n

The risk the bank is taking is that the [limited partners] donot comply with capital calls, said Pierre-Antoine deSelancy, a managing partner at 17Capital, which raisedsome 500 million for its third fund in late 2014. Its avery different risk from lending to someone for a portfolioand using that portfolio as collateral.

But firms that dont use leverage say all this debt could comeback to haunt buyers in the event of a market downturn.

If the exit market becomes more difficult, you havefewer distributions and your net asset values correctbecause theyre linked to the public markets, saidWouter Moerel, head of secondaries at AlpInvestPartners. Then you could get into covenant issueswith your debt.

One final form of leverage used in secondary transactionscomes in the form of deferred payments or seller financing.Secondary buyers may agree to pay a portion of theportfolio sale up front and defer the remainder of the

payment one or even two years later. Doing so often helpsbuyers bid more for a portfolio when the seller isparticularly sensitive to pricing, especially if the buyerexpects the portfolio to generate distributions in the nearterm. Distributions can be used to help fund the deferredportion of the payment for the deal.

GPs Flex Their MusclesAs more limited partners turn to the secondary market toactively shed certain fund relationships in their portfolios,general partners managing those funds are demanding agreater say over who buys into their funds. Amid stiffcompetition for deals, some GPs may even demand

prospective buyers of their fund stakes pony up additionalcapital to back a new fund or new investments, oftencalled a stapled secondary transaction.

Among this years survey respondents, 31% backed atleast one stapled secondary deal in 2014, including 8%that invested in two or more stapled secondary deals. Bycontrast, only 16% of those same buyers had backed atleast one stapled secondary in 2013.

The growing popularity of general partner or fundrestructurings may also be driving growth of stapledsecondary deals, as secondary investors in restructuring

Do You Use Debt to Finance Secondary Deals?


Yes

No

91%

9%

Do You Use Debt at the Fund Level ?


Yes

No

69%

31%

How Many Stapled Secondaries Did You Do?


0

1

2

3

More Than Three

In 2013In 2014

69%

4%

23%

12%4%

84%

4%


24/92


By LAURA KREUTZER

Although manyintermediaries andsecondary buyersagreed that 2014 was a record year for deal volume, theydisagreed over the size of that volume.

Historically, tracking secondary deal volume has beentricky, given that investors and the general partners theybacked often want to keep the fact they are selling stakeson the secondary market out of the public eye. Althoughstill an imperfect science, secondary deals are sheddingthe stigma once attached to them and more sellers are

bringing portfolios, particularly large ones, to market,which means measuring deal volume has gotten easier.

Estimates of total transaction volume in 2014 among somehalf-dozen firms ranged from a little more than $35 billionmade by New York-based Lexington Partners to north of$49 billion by Toronto-based intermediary Setter Capital.

Methodologies for capturing and measuring data differ,with some organizations tracking deals they observe in themarket, including deals that they are aware of, even if theyarent directly connected to them. Others may use acombination of buyer surveys, observed transactions andtheir own analysis. For example, Setter Capital bases its

volume numbers largely on a regular survey of secondarybuyers and makes estimates based on the firms ownanalysis of buyers and sellers in the market.

Even these estimates, however, leave some types oftransactions underrepresented, including the volume ofprivate securities of venture-backed companies trading on

platforms, such as those owned by SharesPost Inc. andSecondMarket Inc., or trades between two institutional

limited partners that involve only a single fund stake.

As more investors turn to the secondary market to managetheir portfolios, and as firms that track the market continueto hone their data gathering techniques, deal volumeestimates ultimately may start to converge around a slightlynarrower band of numbers, according to intermediaries.n

Secondary Market Posts Record Year in 2014,Although Estimates Vary

Select Estimates of Secondary Deal Volume, 2014 vs. 2013

Source: Dow Jones Private Equity Analyst

$42.00

$35.14

$49.30

$36.00$36.50

$27.50

$23.35 $24.50

$36.00

$22.00

N/A0

10

20

30

40

$50B

20132014

UBS AGTriagoSetter CapitalNYPPEX Inc.Lexington PartnersGreenhill Cogent

$37.50


25/92

This announcement appears as a matter of record only

We are pleased to announce the closing of

Landmark Equity Partners XV

$3,250,000,000Formed to acquire interests in established private equity

funds through secondary market transactions.

Landmark specializes in secondary market transactions of private equity,

real estate and real asset investments. Since 1989 Landmark has completed over460 transactions and acquired interests in over 1,700 partnerships managed by

over 670general partners. In excess of $14.9 billion has been committed to theLandmark Funds.

Landmark Partners

Landmark Partners Europe

52 Jermyn Street

London, SW1 6lX+44 (0)20 7343 4450

Landmark Partners Europe is authorizedand regulated by the Financial Conduct Authority

www.landmarkpartners.com

This is not an offer to sell or a solicitation of an offer to purchase interests of any investment vehicle managed or advised by Landmark or any of its affiliates (a Fund) or any other

security. Any such offer or solicitation shall be made only pursuant to a final confidential private placement memorandum relating to such Fund (as amended or supplemented from time to

time, a Memorandum) and such Funds subscription documents. This document is qualified in its entirety by all of the information set forth in the Memorandum, including without

limitation all of the cautionary statements set forth in the front of the Memorandum and the Risk Factors section of the Memorandum.

10 Mill Pond Lane

Simsbury, CT 06070

+1 860 651 9760

265 Franklin Street, 18thFloor

Boston, MA 02110

+1 617 556 3910

681 Fifth Avenue

New York, NY 10022

+1 212 858 9760


26/92


$1,961

$131($2,092)

$951

$2,952

($3,903)

($13,365)

($10,275)

($7,468)($8,380)

($7,029)

($13,932)

($17,847)

($6,609)

($8,380)($8,422)

($16,363)

$6,675 $6,977 $6,735$7,920

$11,430

$13,709$354$1,403

$733

$2,355

$1,935

$2,654

$3,133$4,204 $4,590

$9,383

$6,310

$5,289 $4,175

$2,019

$8,464

$7,622

Rest of World

U.S. Totals

(Yearly totals)

SECONDARY FUNDRAISING* (M)

Secondary Directs

Secondary Partnerships

(Yearly totals)

SECONDARY DEAL VOLUME (M)

Totals rounded up to nearest million. *Includes only dedicated secondary funds.

2002 2003 2004 2005 2006 2007 20

Secondary Market Timeline2002-2014

2007California Public Employees Retirement System sells

a legacy portfolio of fund stakes on the secondarymarket for about $1.5 billion to a syndicate thatincludes Lexington Partners, HarbourVest Partners,Pantheon and Oak Hill Investment Management.

2006-2007Stapled secondariesbecome a commonplaceoccurrence in thesecondary industry.

2005Secondary sales of fundinterests remain near the recordhighs set in 2004, thanks in partto large sales by Merrill Lynch,DPL and Dresdner Bank

2004State of Connecticut RetirementPlans and Trust Funds becomes oneof the first pension funds to sell fundinterests. The buyer is Coller Capital.

2002Coller Capital raises the largestsecondary fund as of that date,with $2.6 billion in commitments.

2007Coller Capital raises a $4.5 billion fund,reclaiming the record for the largest fundthat Lexington Partners took away fromColler in 2006 with its $3.8 billion vehicle.


27/92


($9,172)

($10,816)

($11,921)($11,516)

($20,928)

($24,781)

($18,252)

($25,950)($26,333)

($23,345)

($17,304)

($35,137)

($23,911)

$18,241

$8,598

$23,170 $24,815

$16,697

$29,970

$574

$2,687

$1,611

$1,135

$6,648

$5,167

$1,596

$13,414 $13,929

$8,095$10,326

$12,404

$2,721

$4,839

$5,498

$4,552

$6,018

$12,751

$16,878

$7,033

Sources: Lexington Partners,Dow Jones LP Source,Dow Jones Private Equity Analys

08 2009 2010 2011 2 012 2013 2014

2011Lexington Partners breaksGoldman Sachs $5.5

billion fundraising recordwhen it wraps up a $7billion pool of capital forsecondary deals.

2010AXA Private Equity announcesthe purchase of a $1.9 billionportfolio from Bank of America,in a signal that the floodgateshave finally opened for largeportfolio transactions.

2012Older funds approaching the end of theirlives increasingly are in need of fresh capitalto sustain investment, as evidenced by

Behrman Capital and Willis Stein & Partnersturning to the secondary markets tocapitalize funds raised in 2000 and 2001.

2009An expected surge insecondary deal flowfollowing the late 2008economic downturn isslow to materialize due toa wide price gap betweenbuyers and sellers.

2013Regulators releasethe final draft ofthe Volcker rule,spawning a freshwave of portfoliosales from banks.

2014Twelve deals of morethan $1 billion close in2014, according to datafrom Greenhill Cogent.


28/92


was raised by four funds, and a multifold increase from the$100 million raised in 2013.

Some larger portfolios have started to trickle onto the market.New Jersey Division of Investment, for instance, sold aportfolio of 25 stakes for $925 million to NorthStar RealtyFinance Corp. and Goldman Sachs Asset Management.According to a memo about the transaction, New Jersey wasable to sell the portfolio, which included funds from managersincluding BlackRock Inc., CBRE Inc., TA Associates Realtyand others, at par to the portfolios underlying net asset value.

After trading at an average discount of nearly 30% of net

asset value in the years following the collapse of the housingmarket in 2008, real estate fund stakes were attractingmuch richer bids in 2014, according to data fromintermediary Greenhill Cogent. During the first half of theyear, real estate fund stakes attracted average high bids of92% of NAV, according to the data.

Discounts are falling, said Fabian Neuenschwander, vicepresident of the real estate secondaries business atPartners Group. A lot of people are taking the opportunityto sell interests into this market.

Mr. Neuenschwander added, however, that buyers can stillfind good deals. Youre buying into improving fundamentals,

he said.

U.S.- and European-focused funds continue to be themost heavily traded, making up a combined 85% of themarket, but Asian real estate partnerships made up 11% ofactivity in 2014, up from 4% a year earlier, according toLandmarks data.

Partners Group struck one of the largest deals in the regionwhen it agreed to buy the interests of more than 30 LPs in a$1 billion China-focused fund. That deal involved shiftingmanagement of the vehicle, known as the Trophy Fund, fromWinnington Capital to Venator Real Estate Capital Partners,Private Equity Analyst reported at the time. The deal bought

extra time for the fund, the life span of which has beenextended to 2017, and provided liquidity to LPs who had yetto see any returns prior to the deal.

In a first quarter briefing, Greenhill Cogent predicted that2015 real estate secondary volume is on a trajectory toeasily eclipse 2014 volume as interest in selling fund stakescontinues to grow. This will likely be prompted in part by adiversification of LPs eager to cull their portfolios.

Over the last two to three years, the seller base hasgreatly expanded from the financial crisis, said Mr.Neuenschwander. More and more people see it as anoption to get liquidity. n

By HILLARY CANADA

The real estatesecondary marketcontinued its exponentialgrowth during 2014 as generous pricing drew sellers tothe marketplace.

The number of real estate secondary transactions grew to92 in 2014, a 60% increase from the 57 deals tracked in2013, according to data from secondary firm LandmarkPartners. Similarly, the value of transactions in the sectorgrew by 30% during 2014 to $4.8 billion from $3.69billion a year earlier.

Real estate secondaries have been a laggard as itcompares to private equity, said Landmark Partner JamieSunday. But he added that a growth spurt among privateequity real estate funds starting around 2005 has helpedexpand the underlying asset base.

And just as they do with private equity, limited partners turnto the secondary market to prune their portfolios. LPs mayhave questioned whether enough buyers capital existed tojustify bringing large portfolios to market, said Mr. Sunday.

That attitude may be gradually changing in part becausemore capital is slowly making its way into the space.

Strategic Partners Fund Solutions, the secondary platformBlackstone Group bought from Credit Suisse Group, aswell as Carlyle Groups fund-of-funds Metropolitan RealEstate and Morgan Stanley Alternative Investment Partnerswere said to be raising or considering raising dedicatedsecondary pools, Private Equity Newsreported in 2014.

Last year was a record year for real estate secondaryfundraising, with three vehicles closing on a combined$2.3 billion, according to data provider Preqin Ltd. Thatwas the highest annual total since 2010, when $2.2 billion

Real Estate Secondary VolumeContinues Growth Trajectory

Real Estate Secondary Deal Volume, 2005-2014

Source: Landmark Partners8%

$349.9

$961.8$590.1

$1,247.3

0

1,000

2,000

3,000

4,000

$5,000M

2014201320122011201020092008200720062005

$2,166.3

$2,599.2

$3,691.5

$4,800.6

$1,810.4

$855.1


29/92


By ALEC MACFARLANE

A handful offund managers are looking toraise money to buysecondhand interests in energy-focused private equityfunds, as a maturing of the market and a slide in oil pricescreates attractive opportunities in the sector.

AlpInvest Partners, Adams Street Partners and HarbourVestPartners have each launched or are in the process oflaunching offerings that include secondary purchases ofenergy funds or assets as part of their investment strategies.

We do [think it is an interesting time to invest], said BrettGordon, a managing director at HarbourVest. If you think aboutwhat makes for attractive secondaries, first you need a lot ofinventory, and theres been a lot of money raised in dedicatedenergy funds. With that inventory and the volatility, its reallycreated an interesting time for people who are consideringinvesting and for people to bring deals to the marketplace.

Mr. Gordon declined to comment on HarbourVestsfundraising. AlpInvest and Adams Street also declined tocomment on fundraising.

Secondary investors seek to capitalize on the hugeamounts of money raised over the past decade by energy-

focused private equity firms. About $276 billion was raisedby 417 energy-focused private equity funds between 2005and 2014, according to data provider Preqin Ltd., creatinglarge amounts of future inventory for secondary buyers.

The recent slide in oil prices is also expected to createopportunities for secondary managers, as investors thatare overexposed to energy-focused funds and have seentheir valuations suffer look to shed assets as part of effortsto rebalance their portfolios. So far, however, buyers havebeen in a wait and see mode, according to severalindustry participants. We have seen an uptick in sellersasking for pricing on energy funds, but few deals aregetting inked, Robert McGrath, co-founder of Toronto-

based intermediary Setter Capital, said in an email.

Research conducted earlier this year by consultancy WoodMackenzie said lower oil prices pose the biggest threat tooil and gas industry earnings and financial solidity since thefinancial crash of 2008, with Brent crude trading at around30% below the 2014 average of $99 a barrel as of earlyMay. Industry figures said the slide is likely to have a bigimpact on the valuations of private equity funds heavilyinvested in oil and gas services businesses, as clientspressured by pricing look to cut costs and reduce services.

We are also seeing sellers looking at selling generalistprivate equity funds that have energy exposure such as

Blackstone [Group] and Warburg Pincus, wrote SetterCapitals Mr. McGrath. Buyers are still very keen to buy thesetypes of funds, and aside from marked-to-market movementsin the funds public holdings, pricing remains very full.

Despite the opportunity, some industry figures havecautioned that while it may be a good time to invest inenergy secondary deals, it could be a challenging time toraise energy-focused secondary funds.

There are definitely some attractive opportunities in the oiland gas space because of the oil price and its impact onvaluations of companies and assets, which have beenotherwise quite high in the last couple of years, saidThomas Liaudet, a partner at secondary intermediaryCampbell Lutyens. On the other hand, it might be morechallenging for those managers raising capital becausesome [investors] might see this space as being slightly lessattractive at the moment, and also might feel theyre quiteoverweight to energy in general, given that they haveinvested a lot in the space in the past few years.n

Laura Kreutzer contributed to this article.

Secondary Buyers Preparefor Wave of Energy Fund Sales

Fueling Up for Energy Secondaries

Adams Street PartnersFundraising Plans: Adams Street is marketing an energy-focused fund of funds that will also target secondary deals aspart of its strategy.

AlpInvest PartnersFundraising Plans: AlpInvest is targeting $500 million foran energy-focused secondary fund and aims to hold a firstclosing by this summer, according to people familiar with thefund. Justine Gordon, who joined the firm in September fromGuggenheim Partners, leads the new effort.

HarbourVest PartnersFundraising Plans: HarbourVest hired Kevin Warn Schindelfrom OPTrust Private Markets Group to lead its real assetsprogram. The firm expects to launch a real assets offeringlater this year with a large allocation to energy secondaries,according to a person familiar with the offering.

Source: Dow Jones Private Equity News


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By LAURA KREUTZER

Secondary deal volume hit record levels in2014 and more secondaryintermediaries than ever want a piece of the action.

Secondary buyers and sellers said that in recent years theyhave seen explosive growth in the number of buy-side bro-

kers, or intermediaries that act as guns for hire trying to drumup deals for private equity buyers. Thanks partly to lower bar-riers to entry, the proliferation of such groups has presentedbuyers and sellers with a fresh set of opportunities and risks.

Unlike sell-side intermediaries, which typically get hired andcompensated by sellers in a secondary transaction, buy-side brokers tend to operate more like free agents. They mayapproach buyers to gauge their interest in specific fundnames and then reach out to investors they know that havebacked those funds to see if they are willing to sell.

Firms such as Setter Capital, River Street Capital andScalar Capital have engaged in buy-side broker activities.

Some traditional sell-side brokers or advisers havebrokered buy-side deals or are considering doing so.Setter said more than 300 individual agents haveregistered with the firms SecondaryLink website, an onlineplatform connecting potential buyers and sellers.

Growth in the intermediary industry, including that ofbuyers brokers, has helped drive more secondary dealflow, said Peter McGrath, co-founder of Setter. TheToronto firm estimates about 57% of all secondary dealflow, which includes private equity, hedge funds, realestate and natural resource plays, that took place in 2014involved an intermediary of some kind, according to thefirms midyear secondary deal report.

People are being pinged with so many different ideas thattheyre thinking about it more often, said Mr. McGrath.

Setter, which got its start primarily as a buy-side broker,helped intermediate a sale of a portfolio of fund stakes byHarbourVest Partners to Goldman Sachs Group Inc., saidpeople familiar with that deal. These days, the firm isinvolved in both buy-side and sell-side activities.

The large number of intermediaries out there pitchingprospective deals can sometimes confuse potential buyers,said an executive at one midsize secondary buyer.

Well get calls from four or five different buy-sidebrokers telling me that they have an exclusiverelationship with a seller, and often they obscure whatthe interests are, so I cant piece together that its theexact same portfolio that another buy-side brokerpitched me, this executive said. I may be talking to fourbuy-side brokers bidding against myself and have allfour of them telling me that I owe them.

The number of brokers pitching deals can also presentcomplications for sellers, according to Benot Verbrugghe,who heads the U.S. operations for French firm Ardian.

If the seller gives the same portfolio to too many brokers,

the process could be difficult to manage, said Mr.Verbrugghe. In the end, you still have to manageconfidentiality and information about the funds and theGPs, so you need to make sure this type of approach iswell managed.

Buyers and sellers arent the only ones taking risks,however. Newer buy-side brokers also can find themselvesat the mercy of less scrupulous sellers, particularly if theydont negotiate a contract upfront.

You definitely have more risk there because you donthave anyone thats mandated you, said Mr. McGrath. Yourun the risk of making nothing at the end of the day, even if

you do connect the dots.

Mr. McGrath added that as the market continues to mature,it will differentiate between established players and lessexperienced ones.

A senior executive at one large secondary buyer said therecent growth of buy-side intermediaries has been drivenin large part by ebullient returns from underlying privateequity portfolios, which will not continue indefinitely.

When theres a downturn, no one will return their phonecalls and many of these guys will go away, the seniorexecutive said.n

Buy-Side Broker Boom Brings Risksand Rewards to Secondary Market


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The proportion of secondary sales volume done by investorsrather than employees is hovering at low-single-digit percent-ages on SecondMarket, a platform that facilitates large sec-ondary transactions, according to Anil Sharma, spokesmanfor the company. SecondMarket Holdings Inc. facilitatedabout $1.4 billion in secondary transactions last year, withmost of the shares being sold by startup employees.

Seed funds can see nice upticks in paper valuations as late-stage rounds get done at stratospheric valuations. Thosethat hold onto shares hope that future rounds or initial publicofferings would increase the value of their shares even more

But there are many reasons to sell at least some of theshares now, Mr. Kim said. On the one hand, its unclearwhen some companies plan to reach an exit. Theres moretalk in the market about staying private longer or evenindefinitely, raising questions as to when seed investorswould see a return if they dont cash out in private rounds.

The median time it took venture-backed companies to gofrom an initial venture capital round to IPO was 6.94 years in2014, compared to just 5.6 years in 2005, according toDow Jones VentureSource. Private companies that reacheda valuation of greater than $1 billion in their most recentprivate rounds are even older than those that went public.The median time frame between this groups initial venture

round and valuations topping the $1 billion mark hit 7.7years as of April 1, according to Dow Jones VentureSource.

As timelines stretch, seed investors risk both greater dilutionand getting caught in a valuation downdraft if markets shiftbefore they can exit. Mr. Douvos said that even as fundmanagers consider secondaries, they should keep in mindthat a downturn in the market will reset the clock.

In the fullness of time, everyone will be judged on thecapital that they returned. There were a lot of high-flyingventure firms during the bubble that had incredible paperpositions that evaporated, Mr. Douvos said. n

By YULIYA CHERNOVA

Seed-stageinvestors have long wrestledover when they should cash outof their positions in the start-ups they back, and secondarytransactions in high-valuation private rounds now offer thempotentially lucrative exit options.

But it remains to be seen how many seed-stage fundmanagers will take advantage of them.

Startups that got to late-stage rounds were showered bysizable capital investments at high valuations last year, and

the deals only got larger in the beginning of 2015. In the firstquarter of 2015, for example, the median amount invested insecond venture capital rounds jumped 48% from a year ago,according to data provider Dow Jones VentureSource.Second round valuations in 2014 jumped about 44% over2013 figures, and late-stage valuations doubled.

This puts pressure on seed funds, which are often lessthan $100 million in size and are at risk of dilution asrounds get larger. At the same time, its becomingincreasingly acceptable for employees, founders and earlyinvestors to sell some of their shares in a late-stage round.

These large late-stage rounds have taken the place of the

IPO, and as such, I think theres an opportunity for seedfunds to be selling part of their ownership, said ChrisDouvos, managing director at fund-of-funds managerVenture Investment Associates. Today, the opportunity tosell in these later-stage rounds is another arrow in thequiver of the seed funds in terms of generating returns[and] returning cash to their limited partners.

Mr. Douvos said the secondary market has become aportfolio management tool for seed funds and that some ofthe funds in which his firm is a limited partner have lightenedup their positions in the highfliers.

Its something thats going on, not with great frequency,

but at the same time, its an increasingly important part forpeoples liquidity strategy, Mr. Douvos said.

Michael Kim, managing partner at Cendana Capital, a fund ofseed funds, said he advises all of the fund managers in hisportfolio to consider participating in secondary transactions.Mr. Kim said, however, that he sees more resistance thanwillingness on the part of seed funds to cash out early.Theres some greed involved, Mr. Kim said.

He added that hed like to see more secondary transactions.I think its important for them to monetize and get somecash back to LPs. It hasnt happened as much as I thought itwould, Mr. Kim said.

Secondary Market Offers Seed Fundsan Exit Option but Few May Use It


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By DAVID SMAGALLA

Private equity firms generatedrecord-settingexits in 2014 and secondary firms reaped the rewards,returning an increased volume of cash to investors over thepast year, according to a sample of private equityperformance data from several large pension funds.

For the private equity industry as a whole, disposalscontinued to dominate the headlines this past year, withfirms posting a record $175.28 billion in exits in 2014,compared with $125.04 billion for the prior year, accordingto data provider Dealogic Ltd. Dealogic data includes onlyexits via mergers and acquisitions and not initial publicofferings, and the total value includes only those withpublicly disclosed financial terms.

Meanwhile, secondary deal volume hit record levels, reaching$35.14 billion last year, according to secondary firmLexington Partners, up from $23.35 billion the year before.

Various private equity strategies performed particularly wellduring 2014, according to industry performance benchmarkspublished by consultant Cambridge Associates. U.S. privateequity funds benchmark return reached 18.09% for theone-year period ended Sept. 30, 2014, compared with18.51% for U.S. buyout and growth equity funds and24.46% for U.S. venture funds, which both went on an exittear this last year. Secondary vehicles, though strong, stilllagged their private equity brethren, providing a benchmarkreturn of 14.7% for the one-year period.

Secondary Funds Continue to ReapRewards of Strong Exit Market

Select Secondary Fund Performance DataName of Manager Fund/Vintage Year Fund Type Region

California Public Employees Retirement System

Coller Capital Coller International Partners IV LP/2002 LP Secondaries Global

Coller Capital Coller International Partners V LP/2006 LP Secondaries Global

Lexington Partners Lexington Middle Market Investors LP/2005 LP Secondaries U.S.

W Capital Partners W Capital Partners LP/2003 Secondary Direct/Portfolio U.S.

W Capital Partners W Capital Partners II LP/2007 Secondary Direct/Portfolio U.S.

Montana Board of Investments

Adams Street Partners Adams Street Global Oppty Secondary Fund/2003 LP Secondaries Global

New Jersey State Investment Council

Neuberger Berman NB Secondary Opportunities Fund II LP/2007 LP Secondaries U.S.

Lexington Partners Lexington Capital Partners VI LP/2005 LP Secondaries Global

Partners Group Partners Group Secondary 2006 LP/2006 LP Secondaries GlobalPartners Group Partners Group Secondary 2008 LP/2007 LP Secondaries Global

New York State Common Retirement Fund

VCFA Group VCFA Private Equity Partners IV LP/2003 LP Secondaries U.S.

VCFA Group VCFA Venture Partners V LP/2006 LP Secondaries U.S.

Oregon State Treasury

Coller Capital Coller International Partners VI LP/2011 LP Secondaries Global

Montauk TriGuard Montauk TriGuard Fund III LP/2005 LP Secondaries U.S.

Montauk TriGuard Montauk TriGuard Fund IV LP/2008 LP Secondaries U.S.

Montauk TriGuard Montauk TriGuard Fund V LP/2011 LP Secondaries U.S.

University of Texas Investment Management Co.

Pomona Capital Pomona Capital VI LP/2004 LP Secondaries U.S.

The pension funds released disclaimers with the data, saying that IRRs dont accurately reflect the expected future returns of the partnership and may vary depending on how they are calculated. Theearly years of a partnership, and that their IRR calculations havent been approved by general partners. *Calculated by Dow Jones Private Equity Analystusing the data provided by the pension funds.


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Meanwhile, Montauk TriGuard, which specializes in nichesecondary transactions, had the highest internal rate ofreturn in our sample. The firms 2008-vintage MontaukTriGuard Fund IV LP, which raised $332 million, managedto return $12.5 million in the year ended June 30, 2014,on a $75 million commitment by the Oregon StateTreasury to the fund, garnering a 16.9% IRR. MontaukTriGuard focuses on small secondary transactions, aswell as fund manager liquidity, tail-end portfolios andother specialty deals. n

Funds raised during the end of the last private equity boomperiod were some of the best at pumping out cash to theirinvestors in 2014.

One caveat to this report, which looks at a small number ofsecondary fund holdings from the 2002-vintage yearforward, is that our sample is too small to draw any

definitive conclusions about the state of the secondarymarket and doesnt include many smaller secondary funds,which typically dont receive capital from large publicpension funds.

Coller International Partners V LP, which closed in 2007 at$4.8 billion, continued to show its strength, returning$114.9 million on a $375 million commitment from theCalifornia Public Employees Retirement System for theyear ended Sept. 30, 2014, according to a private equityperformance report. Coller Capital has been busy over thepast few years, scooping up various portfolios from banksand others looking to dispose of their private equityholdings, including most recently buying a portfolio of

private equity fund stakes from Fleming Family & Partners,the manager that invests on behalf of the family of JamesBond author Ian Fleming and other wealthy individuals.

Another fund returning a substantial amount of money toinvestors was NB Secondary Opportunities Fund II LP, a2007-vintage fund that closed on $1.7 billion. The fundreturned $32.5 million for the year ended Dec. 31, 2014,to the New Jersey State Investment Council on acommitment of $100 million.

Capital Capital Dist. in YearCommitted (M) Contributed (M) Ended (M)* Dist. as of (M) Dist. as of (M) Net IRR as of (%) Net IRR as of (%) lRR Change

9/30/14 9/30/14 9/30/13 9/30/14 9/30/13

$100.0 $88.4 $8.3 $111.7 $103.4 11.8 13.3 -1.5

$375.0 $314.2 $114.9 $264.1 $149.2 9.3 7.5 1.8

$50.0 $49.5 $6.2 $49.5 $43.2 11.2 11.2 0.0

$25.0 $23.7 $0.0 $16.6 $16.6 -5.5 -4.6 -0.9

$141.1 $126.1 $11.9 $118.9 $107.1 12.0 14.4 -2.4

9/30/14 9/30/14 9/30/13 9/30/14 9/30/13

$25.0 $19.7 $2.5 $25.3 $22.8 10.4 11.2 -0.7

12/31/14 12/31/14 12/31/13 12/31/14 12/31/13

$100.0 $102.1 $32.5 $97.7 $65.2 N/A N/A N/A

$50.0 $50.7 $7.8 $45.1 $37.3 N/A N/A N/A

$54.5 $53.0 $7.1 $48.0 $40.9 N/A N/A N/A$76.3 $67.5 $15.3 $48.4 $33.0 N/A N/A N/A

3/31/14 3/31/14 3/31/13 3/31/14 3/31/13

$40.0 $38.0 $4.0 $36.1 $32.1 N/A N/A N/A

$25.0 $23.3 $4.1 $19.9 $15.8 N/A N/A N/A

6/30/14 6/30/14 6/30/13 6/30/14 6/30/13

$100.0 $37.7 $5.8 $7.0 $1.2 N/A N/A N/A

$50.0 $46.0 $1.9 $41.2 $39.3 6.0 5.8 0.2

$75.0 $61.5 $12.5 $43.2 $30.7 16.9 17.3 -0.4

$75.0 $32.3 $7.7 $10.5 $2.8 N/A N/A N/A

2/28/15 2/28/15 2/28/14 2/28/15 2/28/14

$40.0 $35.6 $5.9 $31.3 $25.4 5.2 5.3 -0.1

pension funds also said the comparison of IRRs is difficult because the industry doesnt have standard valuation methods. Finally, the pension funds said that the IRRs arent especially meaningful in the

Private Equity Performance Over Time

Performance represents end-to-end pooled mean return, net to limited partners, as of Sept. 30, 2014.Source: Cambridge Associates

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guide to the secondary market, 2015

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