In a recent ION Influencers Fireside Chat, Tjarko Hektor, founder of New 2ND Capital, shared his latest views on the evolution of the secondary market.

Key Topics Discussed

1. Growth and Stability of GP-Led Transactions
   • GP-Led Transactions: Hektor emphasized that GP-led transactions have become a staple in the secondary market, providing liquidity options and generating capital for investors.
   • Continuation Funds: He noted the trend of GPs holding onto their best companies and rolling them into continuation funds, increasing competition for top assets.
2. Role of Secondary Investors
   • Partnerships with GPs: Secondary investors play a crucial role in partnering with great companies and GPs, generating optionality and liquidity for existing investors.
   • Early Involvement: Hektor discussed scenarios where secondary investors are brought in early, sometimes within 12-24 months, depending on the GP’s needs and motivations.
3. Due Diligence and Market Signals
   • Comprehensive Due Diligence: Successful secondary investing involves thorough due diligence, including conversations with multiple GP individuals, portfolio companies, and existing or prospective investors.
   • Understanding Motivations: It’s essential to understand the motivations behind GP decisions to effectively solve problems and assess risks.
4. Evolution of Secondary Investor Skills
   • Skill Development: The skills required for secondary investors have evolved significantly, with a focus on industry experience, reference calls, and background checks.
   • Technological Advancements: The use of AI and other tools is becoming increasingly important for sourcing, due diligence, and portfolio management.
5. Visibility and Influence in the Industry
   • Modesty and Privacy: Hektor highlighted the modest nature of secondary investors, preferring privacy over public visibility, despite the significant impact they have on the market.
   • Publicly Traded Organizations: The trend of secondary groups being owned by publicly traded organizations is changing the industry’s visibility.
6. Adding Value Beyond Capital
   • Expertise and Best Practices: Secondary investors add value by sharing expertise, best practices, and insights from their extensive portfolios.
   • AI Solutions: Hektor mentioned the testing of various AI solutions to enhance investment proposals and models, sharing successful strategies with their network.
7. Focused Strategy and Market Opportunities
   • Focused Strategy: New 2ND Capital focuses on GP-led deals in the North American middle market, allowing them to excel in a specific subset of opportunities.
   • Consolidation Trends: Hektor expects continued consolidation among GPs and secondary players, driven by the need for scale and investment in technology.
8. Changing Investor Allocations
   • Secondary Allocations: Hektor argued that secondary investments should be considered part of the buyout allocation due to their lower risk profile and shorter duration.
   • Underallocated Asset Class: He emphasized the significant opportunities in the secondary market, which remains underallocated compared to its potential.
9. Democratization of Private Assets
   • Role in Democratization: Secondary transactions play a pivotal role in democratizing private assets, particularly through semi-liquid and permanent vehicles.

Key timestamps:

00:06 Introduction to the Fireside Chat
01:00 The Stability of GP Led Cap Deals
04:17 Understanding GP Motivations and Market Signals
05:40 Evolution of Skills for Secondary Investors
09:03 The Visibility of Secondary Investors in the Market
10:40 Providing Value Beyond Capital
15:37 The Importance of Focus in Secondary Investments
18:30 Reevaluating Secondary Investments in Portfolio Allocation
20:36 The Role of Secondaries in Democratizing Private Equity