The vehicle would be one of the largest funds in the emerging market for private debt secondaries funds.
March 30 (Preqin News) - Global alternative asset manager Tikehau Capital is set to launch its second Tikehau Private Debt Secondaries Fund (TPDS II) in April, seeking to raise $1bn. The vehicle would be one of the largest funds in the emerging market for private debt secondaries funds.
Its predecessor, TPDS I, launched in 2020 and raised over $400mn by its final close, with a cornerstone commitment of $200mn from the parent company. TPDS I reviewed over 300 transactions, and acquired 64 fund positions through 16 transactions. Including separate accounts, Tikehau has invested close to $1bn in private debt secondaries. Fund I has been able to benefit from exceptional market conditions, and Tikehau is targeting an unlevered net IRR in the low-teens area for TPDS II.
Private equity secondaries are already a well-established part of the market, with $408.1bn in assets under management (AUM) as of June 2022, accounting for 4.5% of the total $9.12tn global private equity AUM, according to Preqin data.
Private debt secondaries funds have emerged in recent years. The largest players include Coller Capital ($1.4bn by Coller Credit Opportunities I, 2022) and Pantheon ($834mn by Pantheon Senior Debt Secondaries II, 2022).
Pierpaolo Casamento, head of private debt secondaries at Tikehau, estimates the value of private debt secondaries transactions in 2022 was between $10bn and $15bn. “The turnover ratio in secondaries is around 1%,” he says. “In credit, it is quite a bit lower than in private equity, which is partly because of the profile of the assets and partly because this has not been a market worth considering for LPs in the past. So, we think there is room to grow, even just looking at the turnover ratio.”
Private debt secondaries offer some of the same advantages that private equity secondaries do, including diversification, shorter duration to maturity, and reduction of blind pool risk, with most transactions LP-led. Casamento says Tikehau’s private debt secondaries portfolio has held more stable valuations of principal in the volatile market than an equity portfolio, while delivering more stable and regular cash distributions. Underperforming assets are a risk to performance, but there is visibility on the portfolio, and both historic and current performance is factored into pricing.
Activity is being driven by a general desire for liquidity and portfolio rebalancing by LPs, boosted by pockets of activity from particular types of sellers in particular types of markets. For example, over the past two years, several insurance companies in Southeast Asia have sold positions ahead of new regulations governing capital charges on their private debt investments. In the UK, some defined benefit (DB) pension schemes have been looking to sell credit assets to improve their funding positions given gilt market volatility.