Goldman Sachs is among a group of investors seeking to buy cut-price private assets from UK pension funds, which are rushing to raise cash after last week’s crisis in the government bond market.
UK pension funds have sold liquid assets since chancellor Kwasi Kwarteng’s “mini” Budget sparked a crisis in gilts market last week, forcing some to raise cash urgently. Many are now planning to sell more illiquid holdings, including property, private credit and stakes in buyout funds.
“We’re seeing discounts of 20 to 30 per cent for a high quality portfolio [of stakes in private equity funds],” said Gabriel Möllerberg, a managing director at Goldman Sachs Asset Management. “It’s absolutely an opportunity.”
As well as GSAM, investors including a unit of Blackstone have multibillion-dollar funds that can buy up pension scheme holdings, some of which are now trading far below their face value.
The deals are privately negotiated and can take months to arrange but investors are expecting a surge in the next few months.
“In these market conditions, you get very attractive buying opportunities,” said Ross Hamilton at Switzerland-based private equity firm Partners Group, which buys pension schemes’ private fund stakes. “We’ve got dry powder of over $9bn . . . it’s an exciting opportunity for us.”
Many pension funds moved into illiquid private markets in search of higher yields during a decade of low interest rates. They began selling stakes in private equity and venture capital funds earlier this year at the fastest pace on record, partly to rebalance their portfolios after a sell-off in publicly traded equities and bonds.
During last week’s gilts crisis, pension funds were hit with collateral calls relating to debt-fuelled derivatives strategies, leading to more pressure to sell assets and raise cash.
“There’s a cold wind blowing for more illiquid assets,” said David Lloyd, fund manager at M&G.
Pension funds have also braced themselves for demands for cash from the buyout groups whose funds they have invested in to finance a wave of acquisitions agreed during a dealmaking frenzy last year. Buyout groups often initially pay for these deals using so-called subscription lines or short-term loans and ask their investors for money a year later.
GSAM was also lending money to investors against their private equity holdings to help them access cash without having to sell the stakes, said Möllerberg.
Francesco di Valmarana, a partner at Pantheon, which specialises in buying investments in private equity and credit funds from other investors, said: “Turmoil generally drives activity in the secondary market.”
He added that some investors were now looking to sell their holdings in private credit funds for discounts in the region of 10 per cent, compared with sales that were generally closer to face value at the start of the year.
“You’ve already been seeing the ‘denominator effect’ for a little while now,” he said. “What’s happening with the LDI market and UK pensions is only driving this rebalancing further.”