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In the booming structured-solutions segment of the private capital secondary market, “having your cake and eating it too” means gaining liquidity while also staying exposed to additional upside, say experts from Dawson Partners, Crestline Investors and Upwelling Capital.
In this episode of Liquid Courage, we take a deep dive into preferred-equity solutions and NAV loans with Yann Robard, Founder of Dawson Partners, Dave Philipp, Partner at Crestline Investors, and co-host Joncarlo Mark, Founder of Upwelling Capital.
Among the takeaways:
• GPs and LPs increasingly are using structured solutions as an alternative to selling to create liquidity while keeping exposure. “Let's say an LP is sitting there and saying, ‘Look, I'm over allocated. I actually like this portfolio. I don't want to sell it,’” Robard tells Liquid Courage. “They can use a solution to essentially generate liquidity, deal with their temporary over-allocation, bring them back under allocation targets, but maintain the upside. They're not selling at a discount. They're not foregoing future proceeds.”
• Demand for structured solutions specifically - and secondaries generally - has surged because slower exits have left investors hampered with long-in-the-tooth assets and reduced ability to generate cash for fresh opportunities. “In a slow environment like this, you're stuck,” says Philipp. “You still have your future and current capital commitments being called, and so you're stranded because you've got to find liquidity from elsewhere.”
• After years of investor education and repeat transactions, adoption of structured solutions has reached a tipping point. “It is unbelievable the power of adoption,” says Philipp. “Many people look at what Yann and I offer and think it's great but maybe don’t want to be first. But as they see more and more transactions getting printed over the last three, five, seven years with really big blue chip names, it takes a lot of that first-mover risk off.”
• NAV lenders are not motivated to gain control of portfolios. Quite the opposite, says Philipp: “The biggest misconception we get is that fund-level lenders are excited about accelerating and taking over portfolios. When something goes wrong, I can assure everyone that is the furthest thing from the truth.”
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