Infrastructure GP-Led Secondaries

Why invest in Infrastructure GP-Led Secondaries

• Enhanced Liquidity: Investors can gain liquidity earlier than the typical private equity fund lifecycle.
• Portfolio Diversification: Access to diversified portfolios and mature assets with reduced risk compared to primary investments.
• Manager Selection: Opportunity to invest alongside high-quality General Partners (GPs) with a strong track record.
• Information Advantage: Better transparency and access to detailed performance data and asset information.
• Potential for Higher Returns: Lower entry prices and mature assets can lead to attractive risk-adjusted returns.
• Reduced J-Curve Effect: Immediate exposure to seasoned assets mitigates the initial negative returns often seen in primary investments.

What are the main risks of Infrastructure GP-Led Secondaries

• Valuation Risk: Potential overvaluation of assets by GPs looking to exit.
• Concentration Risk: Limited diversification if the secondary deal involves a few large assets or a single fund.
• Liquidity Risk: Despite improved liquidity compared to primary investments, secondaries can still be relatively illiquid.
• Manager Risk: Dependence on the GP’s ability to manage and exit the assets successfully.
• Conflicts of Interest: GPs may have conflicting incentives when restructuring or exiting assets

What characterizes Infrastructure GP-Led Secondaries?

Industry/Sector: Varied: GP Led Secondaries are not confined to a single industry or sector. They often span a wide range of industries depending on the portfolio companies of the GP initiating the secondary transaction.

ESG: ESG considerations are becoming more prominent in GP Led Secondaries. Investors and fund managers are increasingly incorporating ESG criteria into their investment processes, reflecting a growing emphasis on sustainability and responsible investing.

Instruments: Equity, Co-Investments, and Fund Interests: The primary instruments used in GP Led Secondaries include direct equity stakes in companies, co-investment opportunities alongside the GP, and interests in the underlying funds. These instruments are structured to provide liquidity and alignment of interests between the GP and investors.

Target Company Size: Middle Market to Large Cap: GP Led Secondaries typically target middle-market to large-cap companies. These are firms with substantial growth potential and established operations, making them attractive for secondary transactions.

Return Profile: GP Led transactions often involve mature companies with proven track records, providing a balance of risk and reward. The focus is on achieving liquidity while continuing to capture upside potential.

Geography: Global - GP Led Secondaries have a global reach, encompassing opportunities in North America, Europe, Asia, and other regions. This geographical diversification allows investors to access a wide range of markets and economic environments.

Question 1. Where do you see an opportunity in the infrastructure secondary market and how do you approach this opportunity?

Partners Group

Partners Group focuses on inflection portfolios and extension secondaries in the mid-market segment and has consistently achieved a top-quartile infrastructure secondary track record. The mid-market segment is the largest by AuM but is in general less competed than the large-cap space. This in consequence allows us to be more selective as well increases our scope to transact on a proprietary basis, often leading to better entry valuations and the ability to proactively shape transactions. We approach our transactions based on a dedicated infrastructure secondaries investment team that is deeply embedded in our 110 people strong direct infrastructure investment team allowing us to perform what we call "direct-like" due diligence – essentially, this means that we value each underlying investment in secondaries portfolios from the ground up, which coupled with the multi-decade networks in the space often provides the firm with superior asset-level intelligence over market competitors. This "directlike" approach to underwriting has been ingrained throughout the whole investment process starting from sourcing where extension secondaries are sourced thematically. In the due diligence phase, Partners Group works in-depth with large transaction teams which efficiently can leverage the broader Partners Group network of operating directors and its in-house asset management team allowing the firm to build several scenarios for each underlying asset. On the back of this process, Partners Group is well positioned to identify portfolios and assets with strong value creation potential and risk-adjusted returns, which it believes is the key for successfully investing in infrastructure secondaries