Spotlight 2011: Secondaries to stay hot

Barring a collapse in debt markets over the next 12 months, private equity secondaries transaction volume is on track to remain strong in 2011, according to head of private equity secondaries at PineBridge Investments, Harvey Lambert.

“I think we’re in for a very strong period for private equity assets being sold on the secondary market,” Lambert says. “Even though pricing has increased, the risk in deals has decreased.”

PineBridge is estimating more than $20 billion of secondary transaction volume in 2010 with no forecasts of a decline in 2011.

“[Secondary] volume may spike even higher than where it was in 2010, or the volume will put a natural ceiling on pricing and sellers may elect to wait,” Lambert says. 

Harvey Lambert

 
Lambert admits he was surprised at how quickly the markets recovered and secondary pricing shot up in 2010, but he does not consider discounted prices to be necessary for generating high quality deals.

“A lot of people are going to look at pricing today and say, ‘The best days for buying are behind us and we missed the opportunity,’” Lambert says. “I can tell you from our experience that discount to NAV can be a misleading indicator of value. Some of the best deals we’ve ever done have been at pricing that’s much closer to NAV.”

While Lambert does not have a lot of concerns regarding the secondary market next year, two potentially worrisome areas are the continued healing of the debt market and the possibility of macroeconomic issues in 2011.

“Debt-related issues in Europe or any kind of financial contagion that hits the global marketplace are a concern, as they will have the potential to impact the recovery of the debt markets,” he says.