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Alternative Market Briefing

Private equity turns to the secondaries market as holding periods lengthen

Thursday, July 23, 2020

Bailey McCann, Opalesque New York:

The opportunity set for private equity is changing as a result of the pandemic, according to a new paper from 50 South Capital. Preferred equity deals are likely to become a popular alternative to outright asset sales for LPs with high-quality portfolios. GP-led secondaries transactions are likely to grow as well.

Prior to the pandemic, preferred equity was already quite popular within the secondaries market. Preferred equity comes with more flexibility which is important in a volatile and unpredictable environment. These types of transactions also mean avoiding fire sale prices from trying to sell assets during a significant downturn. "This is something we're seeing more and more of," says Brad Dorchinecz, Managing Director of the Private Equity Group for 50 South Capital in an interview with Opalesque. "More GPs are looking for those types of deals as well because they might have an older fund that is beyond its investment period that still has a few portfolio companies that could use equity injections to support them."

With preferred equity, LPs can generate liquidity and GPs can wrap up a fund with minimal overhead. 50 South expects that if holding periods within private equity extend as they did during the immediate aftermath of the Great Financial Crisis, both GPs and investors will need turn to secondaries market as a way of managing available capital throughout the downturn.

Alongside this trend, GP-led secondarie......................

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