Kline Hill Partners

Excited to put up the most recent podcast conversation with Mathias Zücher. This will be a great conversation to listen to especially for those less familiar with #privateequity and the role of allocators in the industry. Here are a few notes of thanks reflecting on the conversation with Mathias and thinking of being thankful in the context of secondaries: ?? The secondary industry has been on a multi-decade growth trajectory of 17% per year. By all means, this looks set to continue: A) secondary funds have delivered consistently high returns for our great LP backers, B) annual LP volume is still below 1% of the $10.5T in PE assets, and C) there is a backlog 28,000 PE companies that cannot exit in time by M&A or IPO alone so really will rely on GP-lead continuation vehicles to cross the liquidity divide. ?? Very appreciative to get to come to work every day and collaborate with the super team here. Kline Hill Partners team will be up to 70 people shortly and have done over 650 deals together. It's continues to be a pleasure. ?? Back in early 2005, I was looking to get back into the private equity world after spending some time in consulting. One fancy / elite recruiter told me that would never happen as I wasn't a banker or currently at a private equity fund. Things worked out. The conversation with Mathias is available on: Spotify: https://lnkd.in/eiTf7F5R Apple podcast: https://lnkd.in/eJZvYn-u and at https://lnkd.in/e7KDhapv Happy Thanksgiving!!

The good folks at Nasdaq put together a great summary of some highlights of Kline Hill Partners Secondary Day morning panel. Some of the main points: ?? Retail capital is in its early days and not impacting secondary pricing en masse yet (though it seems to be over-paying when present). Personally I would hope retail investors should get the same (high) net returns as institutional investors which would imply long term convergence of pricing. ?? Increasing investments by family offices and other traditional LPs into GP-led continuation vehicles ?? For LP deals, a "perfect storm" combination of LP desire to sell and get liquidity combined with high buyer demand with solid pricing is driving very large volume for 2024. ?? The most compelling deal focus for secondary funds today is for GP-led deals (especially middle market sized deals) where there there is a very large supply demand imbalance of sponsors and companies to run CVs on. You can read the full article here: https://lnkd.in/e4QfmghW

Michael Bego shared his incisive take on today's highly active GP-led and vibrant #SecondaryMarket with?SecondaryLink,?including updates on market pricing, deal volume, continuation funds and macroeconomic factors. To read the full article, please visit?here: https://lnkd.in/eeUnXc75 ? #Secondaries #PrivateEquity #Smalldeals

Kline Hill Partners is pleased to announce our role as lead investor in the successful raising of a ￡200 million #continuation fund in collaboration with Phoenix Equity Partners.? ? This transaction highlights how our GP Solutions capabilities can enable GPs to meet their single and multi-asset continuation fund needs and support the continued growth of high-quality companies.? ? Read the full release here:?https://lnkd.in/ew7m9DAQ ? #Secondaries #ContinuationFund #ContinuationVehicle?

Hear the lastest Secondary Snapshot on the secondary market from my 20 minute podcast with Todd Miller, co-head of Private Capital Advisory at Jefferies. ?? What is behind the 2024 drive towards record secondary volume that is pushing $150B? ?? What are the growth areas of secondaries in the coming years? ?? What is the advice in today's market for LPs looking for liquidity Hear it all at: Apple podcast: https://lnkd.in/eZGem7dz Spotify: https://lnkd.in/eqXSwBHH Or access it alongside other great Secondary Snapshot podcasts at Kline Hill Partners: https://lnkd.in/e7KDhapv

The Kline Hill Partners early reporting projection for second quarter US private equity valuation benchmarks from Cambridge Associates is for an increase of 3.3% for the 2nd quarter of 2024 (range of 2.6% to 4.0%). Valuation changes for #privateequity funds are meaningful as they drive ?? pricing and volume in the secondary industry ?? limited partner portfolio allocation issues and opportunities ?? are early indicators of returns for the industry (though we believe when buying assets you really need to build up value company by company which is what over half of our almost 60 person team does) This performance for the benchmarks will not move the needle too much as 2024 has been a year of smooth sailing so far. Prices for competitive deals are high and this should be a record year for secondary volume. However, many LPs will continue to see these values as being too high relative to intrinsic worth. One big focus is on valuations in the tech sector which peaked in 2021 and we still see have room for many companies to have write downs (and in many cases write-offs) bottoming out this fall. The benchmarks typically come out over 100 days after the end of the quarter so we have built up a method to estimate them starting in the middle of a quarter. Please note that our figures are estimates only and should not be relied on for any purpose but are shared only for illustrative purposes.

The attached article by The Wall Street Journal authored by Jonathan Weil covers how #privateequity evergreen funds can make secondary transactions with large discounts that generate large, immediate markups . Existing investors in evergreen funds, like those mentioned in the article, will benefit from the quick mark ups . Assets are bought at a large discount and the acquiring vehicle immediately marks them to market at the net asset value reported by the funds and not their recent purchase price (which is consistent with GAAP accounting). Investors could then see a large increase in the funds returns. Because of this, when evaluating performance of secondary funds, it is better to ignore the IRR for the early years as these immediate mark ups juice a big unrealized IRR. Many of these deals often have or require big discounts because the assets may have little future appreciation or may even lose value over time (N.B. at Kline Hill Partners we often get large discounts but on average, have ~60% of deal returns come from appreciation). The implication is that subsequent investors that invest after these deals are marked up may inherit a pool of assets with less potential future appreciation as of the benefit from those deals was already taken by prior investors. And, in any case, that future appreciation may take years to achieve vs the immediate discount. I was speaking with Thomas Bischoff at Vontobel, a big investor of private client wealth, two weeks ago about evergreen fund selection. He avoids selecting funds for clients that have previously bought assets at large discounts because Vontobel's clients will pay full freight on the current NAV and have less appreciation going forward. The new investors may potentially be investing into flat assets. For closed end funds, like the ones that Kline Hill raises, there is not this misalignment as all of the primary investors are in the same boat with regards to having the same cost in the same investments even for those who come in late closings. One way to game the evergreen funds for early investors would be to quickly redeem your investment if large discount deals are made, pocket the large gain, and leave the potentially flat assets behind for others to own. Private equity evergreen funds are only now beginning to scale and may still have some development needed. Fortunately for the private equity industry, there are many savvy stewards of capital, like Thomas Bischoff, to help guide investors. Additionally, at investment funds, there are many good fiduciaries of investor capital who are working to design new funds with innovation and technology to provide high quality access to private equity investing. https://lnkd.in/eNNq7Z6N

Following her panel at?SuperReturn?Secondaries Europe last month, Managing Director Elena Laleh?connected with conference organizers to discuss the ever evolving European #secondaries market, industry dynamics, and predictions for some of the biggest trends in 2024. You can view the full interview at the link below.

Managing Director Raudel Yanez?recently spoke with Mergermarket?on #privateequity continuation funds and how these transactions have become increasingly popular among today’s GPs who are seeking liquidity solutions for aging portfolio assets. As the private equity exit environment slowly improves, GP-led secondaries can represent an attractive alternative monetization option. ? You can read the full insights here:?https://lnkd.in/ex_zfmG8 ? #secondaries

Elena Laleh, Managing Director at Kline Hill, was recently featured on Mergermarket's Unquote Private Equity Podcast, during which she addressed the performance of secondaries and?GP-led transactions amid a challenging private equity investment environment, while supporting the liquidity needs of Europe’s lower mid-market GPs. You can listen the full podcast here:?https://lnkd.in/enJQzta9 ? #Secondaries #PrivateMarkets #ExecutiveVisibility