GP-led secondaries begin to gain track record with returns beyond 2x – PJT

As continuation funds begin to exit their portfolio companies, healthy returns are beginning to emerge, according to PJT Partners.

Returns ranged from a gross multiple on invested capital of 2x for a $1.5 billion transaction, to a 4.5x return across four continuation funds spanning different sizes, according to the investment bank’s Q3 2023 Secondary Market Insight report.

PJT’s samples were based on its own transaction experience and market intelligence.

Traditional LPs contemplating GP-led focused funds have been intent on identifying examples of fully crystallized continuation funds over the past five years, the report noted. Additional examples of exited transactions will support further growth in the industry, the adviser added.

Other recent exits following the boom in GP-led continuation funds include healthcare specialist ArchiMed’s exit of Polyplus. Investors in its €242 million continuation fund PolyMED netted a return of between 4.5 and 5x, Denis Ribon, chairman and managing partner of ArchiMed, told affiliate title Secondaries Investor in April.

Last year, Nordic Capital secured a 19x multiple of invested capital on its exit of one of the assets the Scandinavian buyout firm moved from its 2008-vintage Nordic Capital VII into the €2.5 billion vehicle Nordic Capital CV1 in 2018. The exit involved selling UK-headquartered diagnostics business The Binding Site to Thermo Fisher Scientific.

Secondaries Investor understands that 19x related to Nordic’s original investment in 2011 and was not based on the return made for continuation fund investors. Investors in the GP-led process still received a “very strong outcome,” according to one of the investors in the continuation vehicle.

GP-led transactions made up 40 percent of the $15 billion to $20 billion of secondaries volume seen in Q3, according to PJT’s report. The demand for transactions $1 billion or more in size re-emerged, complementing mid-market GP-led transactions.

Continued pricing improvement for select transactions on the LP-led side of the market relative to pricing for continuation funds has resulted in some buyers choosing to focus their second half deployment into GP-led opportunities for better relative value, PJT noted.