Neuberger Berman: Secondary Deal Flow At An All-Time High; Only Called 15% of Fund Last Year

Secondary deal flow is at an all-time high, said Brian Talbot, Global Head of Secondary Private Equity at Neuberger Berman.

However, as all too many secondary investors know, deal flow is not the same as deal closes, and the latter falls far short from the former.

Newly independent Neuberger Berman is still basking in the glow of the close of its recent management buyout from bankrupt parent company Lehman Brothers. The MBO came after a heated auction for the firm, where management outbid Bain Capital and Hellman & Friedman. When asked about the firm’s interest in programs such as PPIP, CEO George Walker said his firm is “not interested in any government entangling,” joking that the firm has “had enough excitement.”

Neuberger Berman is in the market with its 19th Crossroads private equity fund of funds, seeking $1.25 billion. The firm had soft commitments of around $500 million as of mid-May, according to Reuters.

The firm’s secondary buyout fund, NB Secondary Opportunities Fund II LP, closed in July 2008 with $1.7 billion in commitments. Despite the sea of secondary opportunities up for sale, Neuberger Berman only deployed 15% of that pool last year.

Talbot said he’s seeing 50% to 60% discounts for stakes in private equity funds. He said, in order to get deals done, those discounts may get smaller to bridge the market’s current bid-ask spread. But since NAV is shrinking, it will be a smaller discount to a lower NAV, he noted. “Discounts will remain pretty high until we see the credit and IPO markets start to come back,” he said. (Ed. Note: One for two?)

Talbot said he estimates there is between $30 billion to $40 billion worth of dry powder willing to invest in the secondary market. Talbot and Walker’s comments were made at a recent press luncheon in New York.