Goldman Sachs is among a group of investors trying to buy private assets at bargain prices from UK pension funds rushing to raise money after last week’s sovereign bond market crisis.
UK pension funds have sold off cash since Chancellor Kwasi Kwarteng’s ‘mini’ budget last week sparked a crisis in the gilts market, forcing some to seek urgent cash. Many are now planning to sell more illiquid holdings, including real estate, personal loans and stakes in buyout funds.
“We see discounts of 20 to 30 percent for a high quality portfolio [of stakes in private equity funds]’ said Gabriel Moellerberg, managing director at Goldman Sachs Asset Management. “It’s absolutely a chance.”
Alongside GSAM, investors, including a unit of Blackstone, have multibillion-dollar funds that can buy pension fund holdings, some of which are now trading well below face value.
The deals are being negotiated privately and could take months to arrange, but investors are expecting a surge over the next few months.
“In these market conditions, there are very attractive buying opportunities,” said Ross Hamilton of Switzerland-based private equity firm Partners Group, which buys private fund shares from pension funds. “We have over $9 billion worth of dry powder. . . it is an exciting opportunity for us.”
Many pension funds turned to illiquid private markets in search of higher returns during a decade of low interest rates. They began selling holdings in private equity and venture capital funds at the fastest pace ever earlier this year, in part to rebalance their portfolios after a sell-off in publicly traded stocks and bonds.
During last week’s gilts crisis, pension funds were hit by collateral calls related to debt-driven derivatives strategies, leading to increased pressure to sell assets and raise cash.
“There’s a cold wind blowing on more illiquid assets,” said David Lloyd, fund manager at M&G.
Pension funds have also braced for cash demands from the buyout groups whose funds they have invested in to fund a spate of acquisitions agreed during last year’s dealmaking frenzy. Buyout groups often pay for these deals first via so-called subscription lines or short-term loans and ask their investors for money a year later.
GSAM also lent investors money against their private equity holdings to give them easier access to cash without having to sell the shares, Moellerberg said.
Francesco di Valmarana, a partner at Pantheon who specializes in buying investments in private equity and credit funds from other investors, said: “Turbulence is generally driving activity in the secondary market.”
He added that some investors are now looking to sell their holdings in private debt funds at discounts of the order of 10 percent, compared to sales that were generally closer to face value earlier in the year.
“You’ve been seeing the ‘denominator effect’ for a while,” he said. “What is happening with the LDI market and UK pensions is only driving this rebalancing further.”
https://www.ft.com/content/c85e0afa-fdf4-499c-bb0d-6c106336ef0c Goldman is targeting asset purchases in UK bond distress sale