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Editor’s note: Investors interested in exposure to General Partner-led (“GP-led”) secondaries, as described by Nigel Dawn here, the global head of the Private Capital Advisory Group at Evercore, may be interested in single asset continuation vehicles.

Ricardo Lombardi, Global Head of Strategic Equity at ICG, provided these comments to Independent Thinking. Please note that the views of the external managers interviewed in Independent Thinking are their own and not necessarily those of Evercore Wealth Management.

Q: Let’s start with the basics: What is a single asset continuation investment vehicle?

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A: These structures focus on situations in which the GP [the private equity General Partner] wants to keep a specific asset beyond the original investment timeline. As investors, we want to be confident that there is additional upside in the value of the business that can be generated with our capital.

Q: What makes for an attractive candidate?

A: Ideally, the underlying company asset is a market leader in an attractive, noncyclical and consolidating – but still fragmented – industry and is generating organic growth. We look for quality businesses with healthy profit margins and recurring revenues.

Q: Why should investors consider single asset continuation vehicles, as opposed to multi-asset vehicles?

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A: In a multi-asset transaction, investors are likely buying assets that range in quality. While that does provide an element of diversification – and most established secondary buyers prefer them for that reason – the quality of single asset deals can be superior, given the right circumstances. After all, the transaction is driven by the sponsor’s interest in retaining a truly outstanding asset. If the buyer has a very disciplined approach to pricing and selection, single assets should have the potential to generate superior risk-adjusted returns.

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Q: Any other considerations?

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A: The single asset market has significant long-term growth potential because it’s still very small. However, the potential market is underpenetrated and growing – single asset continuation vehicles still represented only 3.8% of total private equity exits in 2023.¹ We expect this market to continue growing, as private equity sponsors increasingly appreciate the attraction of the GP-led transactions from the perspective of both liquidity management and portfolio construction.

Q: Please describe your diligence and underwriting process.

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A: Our team of direct buyout professionals has the skills to meet with management, visit sites, develop operational models, hire third-party consultants, and evaluate pricing and partnership structures. And we partner with well-regarded and established GPs who are known to us and have already achieved positive results with their asset.

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Q: How do you think these GPs see ICG Strategic Equity? What are they looking for in a lead buyer?

A: The GP’s primary interest should be around fairness to its LPs, notably in process and price. Key considerations for the GP should include certainty and speed of execution, as well as stability for themselves and the asset’s management team. We provide a one-stop solution in that we typically commit all of the required capital for the deal, which enables the GP to engage with just one buyer, instead of a syndicate of buyers. That makes the process much simpler and resource-effective.

Q: How are market conditions now? What are you focused on at present?

A: So far in 2024, we are seeing one of the strongest pipelines of deal activity we have ever had, both across North America and western Europe. We continue to see increased adoption by GPs that have never pursued GP-led transactions before, so the addressable market is growing. At the same time, at ICG Strategic Equity we continue to be focused on growing the quantum of capital that can be transacted with a sole buyer, and pursuing continuation vehicle sizes up to $1.5 billion.

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With the macro backdrop continuing to drive more GPs to want to create liquidity for flagship funds, plus LPs continuing to want liquidity and increased capital flowing into the market to execute on these deals, we are bullish about the outlook for both the volume and scale of transactions going forward.

For further information, please contact Evercore Wealth Management Partner and Portfolio Manager Stephanie Hackett at stephanie.hackett@evercore.com.

¹ Source: Evercore Private Capital Advisory: “FY 2023 Secondary Market Highlights” (January 2024), Preqin data as of January 2024.

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