Commodities ‘perfect storm’ to drive real assets dealflow

Secondaries buyers are readying themselves for a rise in real assets opportunities as a massive collapse in commodity pricing and the increasing acceptance of deals in related asset classes spur transactions.

Several firms are in market with secondaries-focused real assets platforms, which can include infrastructure, energy, timberland and agri, and metals and mining exploration. Energy-related secondaries deals in particular are expected to boom, as potential sellers realise the drop in commodity pricing was more than just a blip and seek liquidity for their investments.

“We’ve just come off a record fundraising period for energy funds and we now have a perfect storm of robust fundraising followed by a collapse in commodity prices,” Kathryn Leaf Wilmes, head of Pantheon’s global infrastructure and real assets team, told sister publication Secondaries Investor. “There are certainly going to be LPs who in the face of this volatility will want to reduce their exposure.”

Infrastructure investment is also on the rise, with global infrastructure needs expected to top $57 trillion through 2030, according to McKinsey & Company.

Agriculture and timber remain a small part of the secondaries market, but saw the largest growth in transaction volume out of any asset class in that market in 2015, with a 57 percent rise on 2014, according to this year’s Setter Capital volume report. The $313 million exchanged in timber or agriculture last year was mostly in forestry transactions, the report’s author and Setter managing director Peter McGrath told Agri Investor. Stafford Capital Partners and the International Woodland Company were among the few dedicated secondaries managers in that space, McGrath said.

Other secondaries funds are also showing an interest in agri. Mantra‘s recently closed €80 million Mantra Secondary Opportunities Fund (MSO) has completed deals across a wide range of geographies and strategies, including acquiring limited partner stakes in multiple funds with growth equity, agribusiness, energy, buyout and venture capital strategies, Fabrice Moyne told Secondaries Investor.

HarbourVest Partners is also raising a third real asset-focused secondaries fund which may well be open to some agribusiness investment. A real assets report published by the firm this year looked at timber and agriculture, which it said has $45 billion of assets under management in timber and $15 billion in agriculture focused funds. The firm said the secondaries timberland and agriculture market was “smaller” than other real asset categories but “growing in scale”.

The real assets secondaries market across asset classes could grow at double the rate of the private equity secondaries market due to the profile of the primary capital that has been committed over the last 10 years, according to Brett Gordon, a managing director at HarbourVest. Real assets secondaries such as infrastructure do not suffer from some of the issues that took almost 20 years to iron out in the private equity secondaries market, he said.

“It’s much more dynamic, there’s greater flow, it’s a much more widely accepted marketplace today because private equity figured all that out and opened it up for everyone else,” Gordon told sister publication Secondaries Investor.

Kevin Warn-Schindel, who leads HarbourVest’s real assets programme, said the firm had logged around $11 billion in potential real asset secondaries deals last year, with 2015 accounting for around one-third of total dealflow the firm has seen over the last five years.

Pantheon is also raising real assets secondaries funds, as is AlpInvest Partners, although it gave up plans to raise a dedicated energy and infrastructure vehicle around October and instead rolled the program into its broader secondaries business. HarbourVest has previously invested in agribusiness and agtech,  including in food and agtech focused Avrio Capital Fund III, which reached a final close on C$108 million ($77.53 million, €69.2 million) in February.

Both Pantheon and HarbourVest declined to comment on any fundraising.