Coller Capital sees rise in secondaries in 2024

'At this point, industry participants don’t yet see a clear pick-up of the M&A market. The longer it lasts, the better for the secondary market,' says Coller partner Francois Aguerre.

Francois Aguerre, Coller Capital

Coller Capital predicts volume growth within the secondaries market in 2024 to get a boost by large fundraises and difficulties in the exit market, Francois Aguerre, partner, co-head of investment and global head of origination, told PE Hub Europe in the latest of our dealmaking outlook series.

Coller is an independent investor focused on the private capital secondaries market. The London-based firm received a strategic minority investment from Hunter Point Capital in April. Coller’s recent funds include Coller Credit Opportunities I, which closed in February 2022 with committed capital of approximately $1.5 billion. At the start of April, the firm held a first close of its Coller Capital Secondaries RMB I Fund.

“Large funds have been raised – and are being raised in our market,” said Aguerre. “That could lead to volume growth or price increase, or both. Considering the pressure on the supply side, I suspect it will first lead to volume growth.”

The M&A market is “inactive”, said Aguerre, adding that the IPO side is in even worse shape. While bad news for PE firms looking for exit options, secondaries firms are having a much better time. “We therefore benefit directly in our ability to price our solution at higher levels, through stronger bargaining power,” said Aguerre. “At this point, industry participants don’t yet see a clear pick-up of the M&A market. The longer it lasts, the better for the secondary market.”

Deals getting done in the secondaries market are essentially US-Europe buyout assets, according to Aguerre. As there are so many “known, high-quality assets” available, secondary investors don’t have any reason to pick up the phone when an emerging manager or a small VC fund calls them up, he added. “You could get meaningfully large discounts in those transactions, but the core market is so attractive that there’s no compelling arbitrage to go look elsewhere.

“In a challenging fundraising environment, capital is more concentrated, it’s going to fewer managers. That’s where the competition lies today, in private markets, who is able to raise and who isn’t.”

Valuation worries

Despite the positive view for 2024, valuations are causing Aguerre and several others to lose sleep. “None of us have a crystal ball,” he said. “Our view internally is that the rates will not go down anytime soon. When the rates are higher, the valuations should be lower, and they are not. It’s always a problem when those don’t adjust as expected.

“This poses an issue for the buyside; if you deploy too much capital now, and in 12 months’ time you’ve got a substantial collapse in the valuation multiples, it obviously impacts the performance of your current fund.”

For new players, the secondaries market itself is difficult to enter, according to Aguerre. Most firms acquire a secondary product through M&A. “We’re looking forward to following other players in the market and seeing if they can overcome the entry challenges; so far, in the core secondaries market, no one has done it,” he added.

Aguerre has a “strong feeling” Coller is going for another record year. “It’s like when you run, you go for a personal best, a PB,” he said. “We’re going for another PB.”

Editor’s note: PE Hub Europe will be running 2024 outlook Q&As with senior private equity dealmakers through December. The previous instalment was with Steven Tredget, a partner at Oakley Capital.