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‘Tech trade’ leads secondaries in expected slowdown, Morgan Stanley Capital on its buy of SpendMend

Secondaries might be heading toward a stall in second half of the year.

Happy Wednesday!

This is Chris, on the Wire this morning.

The “tech trade” is getting hammered in the private equity secondaries market, a reflection of the pain experienced by publicly traded tech stocks since the beginning of the year.

The market has been awash in LP stakes in tech exposure, both through large multi-asset buyout funds as well as sector specialized pools. Sellers have been trying to sell down tech exposure since the markets opened back up in the second half of 2020, as rising valuations pushed some sellers out of balance.

This is creating a strange dynamic with highly performing tech-focused firms, with strong funds, are priced on the secondary market sometimes at deep discounts due to oversupply. Buyers have already gotten their fill of the tech trade, rendering stakes in otherwise in-demand GPs less valuable.

Now, as tech valuations plunge, the tech stakes on the market are becoming even harder to sell.

“I think the tech trade has slowed because of the volatility starting in January,” a secondary adviser told me. “If you look post-Covid, the only trade that was possible was the tech and healthcare trade, every other sector had headwinds. The secondary market from Q3 of 2020, through today, has been one big tech trade.”

Overall, secondaries professionals who have spoken to Buyouts in recent days expect a slow down in secondary activity, as buyers and sellers spend March trying to close deals already in the market.

Advisers are telling clients to hold off bringing new processes to market for a period of time, perhaps several months, as the market waits for the geopolitical situation to settle (which may be wishful thinking).

It’s increasingly looking like secondaries may see a slump (relatively speaking) until the second half of the year.

Big: Still, some deals are getting done. Lexington Partners has emerged as a buyer of at least a piece of a massive portfolio being sold by CalPERS. The deal, up to $6 billion, is the largest LP portfolio on the market and, if sold in total, would be among the largest-ever PE secondary sales.

However, Lexington is only taking a piece of the portfolio. It’s not clear if CalPERS will try and sell the rest of it. Read it here on Buyouts.

Healthcare: Morgan Stanley Capital Partners invested in SpendMend, which provides tech-enabled services to optimize the cost cycle for the healthcare industry. The firm made the investment as it closed its seventh fund earlier this month on $2 billion, writes Aaron Weitzman on PE Hub today.

MSCP has spent a lot of time on cost cycle management for providers who are “getting squeezed” as healthcare costs rise, said Steve Rodgers, partner with Morgan Stanley Capital. “There is pressure on revenue, and costs are going up at the same time; reimbursement is shifting to value-based methodologies that put hospitals at risk, and they often do not have good information on what it costs to perform procedures.”

Overpayments and contract compliance errors are problems hospitals face, in part because conflicting data exists in multiple places.

“We have looked at a series of companies over the last four years, which provide various tech-enabled offerings that help hospitals address these huge problems, which have only become more acute since the covid crisis emerged,” he said.

Read it here on PE Hub.

That’s it for me! Have a great rest of your Wednesday. Hit me up with tips n’ gossip, feedback or book recommendations at cwitkowsky@buyoutsinsider.com or find me on LinkedIn.