Activity in PE secondary market to pick up in H2

The activity in private equity (PE) secondary market is expected to pick up in the second half of the year, after a period of a slowdown during the recent months, according to Schroders’ alternatives director Claire Smith. 

The last few months, which also saw a slowdown in markets and acquisitions activity, were difficult for secondary trading of PE portfolios due to the lag that affects valuations of companies and the average time it takes before the valuations recover which is usually around a quarter. 

“We’ve seen a little bit of a slowdown in M&A activity and secondary activity but we are starting to see it pick up again so we think there will be good opportunities, particularly in the secondary market in the second half of this year,” Smith said. 

“We are also seeing structured secondary opportunities where you can provide rescue capital to some companies that might have some short-term difficulties.” 

Schroders  announced a few months ago the launch of its new private equity fund in Australia, the Schroders Specialist Private Equity fund (SSPEF), which according to the company offered to Australian investors diversification away from the listed equity markets, with a focus on small to mid-cap companies across Europe, the US and Asia, with a particular emphasis on the markets in India and China. 

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According to Schroders, the good opportunities in China could be currently found around innovation and ‘good tech companies’ as well healthcare firms. 

“We are fortunate as we have got permission to invest directly in Chinese renminbi which not all fund managers have so we can access local companies in the local currency which is quite good. I think the thematic across both [India and China] are the rising middle class and increased consumer spending,” Smith added. 

The fund has also an exposure to a number of companies in Europe, including Spain, the UK, France and the Nordics. 

“Of a general rule, we would like to work with specialised private equity investors whether this will be specialised by region or by sector. When you are investing in that small to mid-cap space you want the people who know the region or the sector. I suppose it’s also about the PE managers themselves what is their track record, what they specialise in,” she said. 

According to Smith, many financial planners were already invested in private assets and they were  quite pleased with how they fared during the COVID and they were looking to increase their exposure. 

She said that people traditionally looked at PE to provide a bit of comfort and diversification to their portfolios, especially at times when the listed market was concentrated on a few big names. 

“The fund aims to make PE accessible to a broad range of investors who might not be comfortable with a long lockup period. We want to make it accessible to more people, make the minimal investment amount lower than it is traditional for PE and give people that ability to access the capital, if their circumstances change,” Smith said. 

“So interesting opportunities are coming. When we look at our portfolio construction for this particular fund, we are a little bit underweight the US because Europe came out of the lockdown a bit earlier and activities resumed there a little bit more quickly than what we see in the US but we expect that this should follow in due course.”