Bridge’s $320m acquisition of Newbury opens path to real estate secondaries

Bridge Investment Group’s recently announced $320 million acquisition of Newbury Partners, an investor in GP secondaries, will tee off a new era of real estate secondaries, as well as other opportunities in the wider private equity market for both firms, Robert Morse, Bridge’s executive chairman told PE Hub in an interview.

Bridge, founded in 2009 and headquartered in Salt Lake City, is a vertically integrated real estate investment manager with approximately $43.3 billion of assets under management.

Newbury, founded in 2006 and headquartered in Stamford, Connecticut, focuses on acquiring limited partnership interests in established buyout, growth equity and venture capital funds. It has raised over $6.2 billion of committed investor capital across five dedicated funds. The firm is planning to raise a sixth fund.

“We have taken a strategic approach to how we grow as we evolve,” said Morse, adding that the alternative asset management sector is growing at a double-digit rate, and secondaries provide a significant opportunity for liquidity to private equity investors. “We focus on the secondaries business as an even more rapidly growing area of private equity than the underlying market itself.”

Bridge did a great deal of work to understand the sector and the participants, and concluded that the Newbury culture, philosophy and investment thesis fit very well with Bridge’s investment thesis, Bridge’s executive chairman said.

Even though Bridge will continue to offer several real estate-oriented vehicles to its investors, offering a secondaries exposure to its investor base, together with the existing Newbury investor base, will be a positive addition to the business, said Morse. He said there is a great deal of growth in the secondaries market related to real estate investments.

As our colleagues at Secondaries Investor have reported, real estate secondaries transaction volumes have risen an average of 16 percent annually over the past five years.

“We think there’s opportunities to expand into real estate secondaries and other areas of the secondaries business that Newbury currently does not participate in as well,” he said.

Liquidity options

What adds to the attractiveness of the deal, especially when operating in a tight fundraising environment, is that for investors in closed-end funds where there are limited liquidity alternatives, secondaries have emerged as one of the most promising options.

As liquidity needs grow in times of dislocations, Morse believes the combination of Bridge and Newbury will offer solutions to alternative asset investors who might have a change of plans, or whose capital is diminishing or need liquidity for whatever reasons. “The fact that there is a decrease in fundraising today should amplify the opportunities available for secondaries market participants.”

But the tight macroeconomic environment has also affected the valuation processes in that there are emerging wide variances between the bid/ask spread. However, Morse said: “We think we paid a very attractive price on a multiple basis of 2022 earnings for Newbury and on the basis of projected 2023 earnings.”

In terms of growth, the Bridge executive chairman said there are both organic and inorganic opportunities. The combined skill sets of both firms will help them scale the business, Morse added.

And Morse said that Bridge, as the acquiring firm, has a sophisticated infrastructure that provides support and fund administration for Newbury. “We feel that we can fold the Newbury operations seamlessly into what we do from an operational perspective.”

Although Morse could not be drawn into details of the sixth fund that Newbury will be raising, Newbury partner Christopher Devin Jaroch told analysts during last week’s earnings call that even though fundraising activities for the secondaries market was slower in 2022, it is the third-largest fundraising market on record.

Jaroch predicted fundraising will be robust because, “we see lots of inbound interest in some secondaries right now because in some way, this is exactly the exposure in the market that a lot of people are looking for,” he said. “So we are very, very excited about it.”