Private equity’s secondaries magic

One scoop to start: Citigroup has ratcheted up performance targets for its private bankers, setting goals that some fear are unachievable as the lender seeks to jump-start its money management business.

Another thing: Blackstone and industrial investor Tinicum have agreed to buy aerospace parts supplier Senior in a £1.4bn cash deal, the latest in a series of takeovers of UK industrial groups.

In today’s newsletter:

How to make money in private equity in 2026

The private equity industry has been smashing records lately. Private equity firms are sitting on an all-time high of nearly $4tn in unsold investments. They sold assets to themselves at an unprecedented rate last year.

These aren’t great milestones for the industry, but one corner of the market is booming.

Last year, so-called secondaries funds attracted a record $166bn in commitments. 

DD’s Alexandra Heal and Antoine Gara have a deep dive on the exploding secondaries market and whether the industry’s eye-watering reported returns will hold up. 

Secondaries funds are so popular right now largely because of the industry’s broader challenges: they buy and sell the very assets that private equity groups have been struggling to exit.

They either buy stakes in buyout funds from cash-strapped institutional investors, such as pension plans, or they buy assets from older funds.

Many established secondaries funds are earning returns that are 50 per cent higher than the underlying PE funds they take stakes in.

DD readers may wonder how exactly a trade for ageing, hard-to-exit assets can do so well.

Some returns come from targeting deals closer to exit, which are purchased at a discount, but funds also rely heavily on leverage using a few different techniques. 

First, secondaries vehicles can juice returns by using external borrowing to finance purchases of stakes in existing private equity funds.

Second, some secondaries managers create a leverage-like effect by investing more than the value of the fund based on expected cash flows from earlier investments. 

Third, secondaries funds routinely borrow from sellers by deferring some of the payment. 

The risk with all the leverage is that problems from bad deals will be amplified. (As one PE investor put it, “how much software is in these portfolios?”).

There are also accounting quirks. Secondaries funds buy stakes in funds at discounts but accounting rules mean they can mark them up to their original book value as soon as the money changes hands.

This often leads to high early returns that tend to fall over time, due to the period it takes the underlying assets to be sold. 

These deals have become increasingly prevalent in vehicles targeting private equity’s newest customer: the retail investor. That’s raising concerns that novice investors have unrealistic expectations from so-called evergreen funds with high early returns.

“If you’re adding capital to an evergreen fund, you might think, ‘Wow this is great, the fund is up 20 to 25 per cent,’” said Euan Finlay, partner at Partners Capital. 

But if that early return comes from writing up assets purchased at a discount, investors may be disappointed over the long run. 

Bill Ackman’s latest quixotic M&A plot

Hedge fund billionaire Bill Ackman has a spotty record when it comes to high-wire and ultra-complicated M&A schemes. But he has no shortage of ideas. 

On Tuesday, Ackman’s Pershing Square Capital offered to buy the world’s biggest record label, home to artists including Taylor Swift and Kendrick Lamar.

The deal would merge Universal Music Group with a blank-cheque company set up by Ackman, valuing the music company at about €55bn.

Ackman is proposing moving its listing from Amsterdam to New York, selling its stake in music streamer Spotify and adding leverage.

Under Pershing’s proposed terms, Universal shareholders would receive €5.05 in cash — a total of €9.4bn — and 0.77 shares in their newly created company for every Universal share they owned.

It’s the latest among a spree of quixotic M&A plans from Ackman, which began back in 2014 with his ill-fated attempt to merge pharma roll-up Valeant with Botox maker Allergan. The deal never materialised and Valeant unravelled, causing Ackman to lose billions of dollars and eventually admit a “huge mistake”. 

In 2015 he backed rail company Canadian Pacific’s pursuit of Norfolk Southern. But that also failed.

Ackman has been busy of late with his ambition to build a “modern-day Berkshire Hathaway”, filing for an IPO for his Pershing Square vehicle on the New York Stock Exchange last month. (He previously tried to list the fund in 2024 but it failed because of investor concerns that its shares would quickly trade at a discount.) 

Last year Ackman’s real estate company Howard Hughes announced the $2.1bn purchase of an insurer as part of his efforts to build up a Berkshire-esque conglomerate, though the stock has performed poorly. 

During the Covid-19 pandemic, Ackman also raised a $4bn blank-cheque vehicle but returned the capital after failing to identify a deal, though the residue of that effort colours his Universal ploy. 

Ackman plans to fund part of the Universal takeover from a so-called Sparc left over from his failed blank-cheque effort. The plan has its sceptics, naturally. 

As music investor Matt Pincus described the deal: “I’m only giving shareholders $5bn in cash, and the rest of it I’m giving them in a publicly listed blank-cheque company, with the idea that simply moving it to a US listing creates the uplift. It’s basically ‘add water and you get a higher valuation’.”

Evercore lands top healthcare dealmakers

Evercore has extended its hiring spree of healthcare dealmakers by poaching another senior JPMorgan banker, as investment banks seek to bulk up their ranks during a frenzied stretch for healthcare dealmaking. 

JPMorgan’s healthcare M&A co-head Eric Rabinowitz has departed for a senior role at Evercore and will start later this year, according to people familiar with the matter. In March, Evercore recruited Ben Carpenter, JPMorgan’s global co-head of healthcare investment banking. 

The busy transfer market for healthcare bankers comes as dealmaking across the sector is booming. Some $166bn worth of healthcare deals were struck in the first three months of the year, according to Dealogic. 

Dealmaking has been particularly relentless among large drugmakers as they snap up promising biotechs to replenish their pipelines of experimental medicines, with $300bn worth of branded medicines set to lose patent protection by 2030. Medical technology firms and healthcare services providers have been busy as well. 

JPMorgan also lost star dealmakers Phil Ross and Chris Roop to Jefferies in recent years. Since arriving at Jefferies the pair have advised on some of the biggest biotech deals, including Intra-Cellular Therapies’ $14.6bn sale to Johnson & Johnson last year, the largest biotech acquisition since 2023. 

Following Jefferies’ playbook, Evercore is looking to win market share from larger rivals by recruiting star dealmakers. Last year, Morgan Stanley’s former healthcare head Joe Modisett also jumped ranks to Evercore. Francois Maisonrouge, an Evercore veteran who has advised on some of the biggest pharma deals ever, has long been the firm’s healthcare rainmaker.

Rabinowitz specialises in healthcare services deals, where the wheels have also been turning on M&A activity. This year’s deals include General Atlantic buying a majority stake in Team Services, valuing the homecare provider at a $3bn enterprise value, according to people familiar with the matter.

Job moves

• HIG Capital has appointed Brian Schwartz as chief executive. Schwartz, the firm’s co-president, succeeds Sami Mnaymneh who will become executive chair alongside fellow co-founder Tony Tamer.

• Jeff Bezos’s Project Prometheus has hired Kyle Kosic from OpenAI to work on AI infrastructure projects. Kosic is one of the co-founders of xAI alongside Elon Musk.

• The Italian government is set to replace Roberto Cingolani as chief executive of Leonardo, in an unexpected move that risks unsettling investors after a strong turnaround at the state-controlled defence group.

• Simpson Thacher has hired Michael Kuh and Eric Geffner as co-heads of its sports group, and Matthew Carpenter-Dennis as an M&A partner.

Smart reads

Europe bears Investors are betting that the Iran war — and the energy shock it has caused — will hit corporate Europe hard. Hedge funds have built record short positions against the continent’s stocks, the FT reports.

Moneyball There may be things that money can’t buy, though a college basketball title apparently isn’t on the list, The Wall Street Journal reports. Michigan spent more than $10mn building the roster that clinched the university’s first national championship in decades.

Mortgage crisis China’s property crisis has left millions of its citizens underwater on their mortgages, Bloomberg reports. Banks are attempting to devise solutions to fend off a wave of foreclosures.

News round-up

Commerzbank clashes with UniCredit over failed takeover talks (FT)

BP chair faces re-election battle after board blocks climate resolution (FT)

Anthropic rolls out cyber AI model days after source code leak (FT)

Abu Dhabi’s Mubadala Capital raises almost $1bn for latest Brazil fund (FT)

JPMorgan to build Canary Wharf’s tallest tower after City airport approval (FT)