François Gamblin interviewed by Jeremy Hocter – Published by Pevara

The private equity industry saw secondary market activity hit new highs in 2011, with volumes primed to increase in 2012 and beyond. I caught up with Francois Gamblin, CEO of Secondcap, to discuss the recent secondary market trends and find out how firms such as Secondcap are helping both buyers and sellers in this growing market.

2011 was a very active year in secondary trading; how do you see this continuing through 2012?

Secondary specialists have raised over $33 billion that they need to deploy over the next 5 years. This will lift the broader secondary market and we will see increasing volumes of positions traded. We believe the secondary market presently represents about 4% of the primary market, amounting to about $25bn last year. We also believe the liquidity in the market will increase significantly in the coming years, in part due to more deal flow from large financial institutions but also because LPs are now better educated about the opportunities in the secondary market.

What impact do you see the Solvency II rule having on the secondary market through 2012?


Large deals in the market are being driven by regulatory forces. These forces will play a key role in deal flow over the coming years. We expect that the allocations of regulated LPs will focus on a few core relationships, particularly in the buyout strategy, but other positions will be sold as secondaries and many managers will not get re-upped for new funds.

Aside from liquidity constraints, why might LPs consider selling their fund commitments on the secondary market?

A few of the main reasons are:

  • Selling of “Tail-end Funds” will be a new source of deal flow for LPs
  • Reducing risk and exposure for relationships where a GP will not be in a position to raise a new fund
  • Some LPs are altering their core strategies and refocusing their portfolio allocation to emerging countries, for instance, thus reducing exposure to low growth economies such as Europe
  • Finally, we see some LPs being proactive in managing financial performance and looking to crystallize gains or sell poorer performing positions

Secondcap has successfully established a diverse community of LPs. Can you talk us through some of the trends in the type or region of LPs leading secondary purchases?

Over 300 qualified LPs have registered on our platform, each stating their preferred wish list per geography, stage and fund name, enabling us to give the sellers access to a targeted global network of buyers. Currently, our network is comprised of 55% European buyers, 33% US buyers and 12% from the Middle East and Asia. The demand for secondary deals is global, with a strong demand from buyers outside of the geography of the seller. Investors need to consider a wider spectrum of buyers, not just the buyers located in the same fund’s geography.

Based on actual Secondcap transactions and investor interest, European funds attract 73% of interest from European buyers with the remaining 27% coming from US & ROW. US fund deals see more traction from non-US buyers, who make up 39% of the total interested buyers. Lastly, ROW Funds attract 58% of their interest from outside investors with European buyers leading the way at 51% of that interest.

What advice would you give an LP considering secondary purchases?

Do not focus exclusively on discounts!

There is absolutely no correlation between the discount and the final performance. Begin with a detailed bottom-up analysis of the fund (portfolio analysis, carried interest structure, fees) followed by a top-down analysis to include GP quality, track record, consistency with expected distributions and capacity to raise a new fund over the next years. The two approaches should be consistent which will ultimately support better decision making.