Jain explains that there has been a great deal more education about secondaries among advisors and investors. Rather than inbound questions asking what this market is like he would receive a decade ago, he now gets questions about whether the firm trades more in GP and LP secondaries or in venture secondaries. He believes that more investors have come to view this market as a space in between their public equity and fixed income allocations. Like other private assets, he believes secondaries can serve as a volatility offset and a returns driver.
Because Jain and his team tend to purchase secondaries at a discount, he notes that investors tend to get an immediate NAV pop. That discount also creates a comfortable margin of safety for the investment. Because these strategies are priced on a quarterly basis, too, they offer ballast and stability in the portfolio which can help with behavioural management.
Invico’s strategy, Jain explains, is to seek smaller companies with GPs and LPs seeking to sell secondaries. Going after bigger names, he notes, puts retail money up against institutional and in massive deals valued around the hundreds of millions of dollars. Seeking alpha, he and his team try to find deals with features that might put off some bigger buyers. Deals, for example, that include a real estate component, or a hedge fund portfolio. Those sort of features would put off more pure-play secondaries investors, but Invico’s relative agility allows them to capture opportunity in that space, often at discounts between 35 and 45 per cent.
“We take a pretty conservative approach, where if the GP is marking an asset at 1x we’re assuming that we’re going to get a 0.7x or 0.5x on there,” Jain says. “And if after that, we can get a double digit return, we don’t see a whole lot that can go wrong on that side.”
For advisors looking to enter the secondaries space, Jain recommends a relatively straightforward approach that begins by determining what an advisor seeks to gain from their secondaries allocation. That, in his view, is high-quality, risk-adjusted, and diversified private market exposure. He compares secondaries to the other options for a private asset allocation: private equity funds and private credit funds. He argues that secondaries trade at a discount to those other funds and come with a shorter duration. Invico’s funds, he explains, are three plus one years, as opposed to the 10-year lock that comes with many private equity funds.
