Hamilton Lane: ‘We’ve seen a massive increase in GP-led secondaries’

Europe is a “critical” geography, says giant US alternative investment manager Hamilton Lane.

The firm, which has more than $950bn in assets under management and is known for its private equity, debt and real estate strategies, announced its latest dedicated $615.3m venture fund earlier this year. It will be invested in VC funds and transactions, including direct secondaries and VC secondaries — like LP stakes and strip sales — and be used to back European fund managers

“We’ve seen a massive increase in GP-led secondaries,” Miguel Luina, co-head of global venture and growth equity, tells Sifted, referring to deals where VC fund managers sell stakes in one or more portfolio companies. 

“That’s been probably the biggest growth driver for the industry.” 

The secondaries ‘wave is likely coming’ in Europe

Hamilton Lane has had “a lot of conversations with European managers” recently about how to structure strip sales, which involve bundling a bunch of portfolio companies together and selling a percentage of a fund’s stake in each of them to other investors. “We think that that wave is likely coming within Europe,” though it’s lagged behind the US. 

Though those recent deals have been in new funds, Luina says there’s also a lot of interesting secondary opportunities in Europe right now, which Hamilton Lane views as a “critical” geography.

Venture secondaries tend to be priced at a 25% discount to net asset valuations, Luina says; valuations which have often already been marked down about 30% from the market peak in 2021. “There’s the opportunity to get into a lot of these companies at a 50% discount to where they were in 2021.” 

Those discounts aren’t quite as steep for things like strip sales, because often the portfolios VCs are selling are of higher quality, he says. Hamilton Lane has done “quite a few” of these types of deals in the last six months. 

Where Hamilton Lane is looking to invest

Hamilton Lane likes funds and startups working on the “knock-on effects of implementing AI globally” — for example, those investing in data management and cybersecurity, says Luina. It’s also interested in some of the more cyclical sectors like fintech and consumer in Europe, which “are probably not as hot right now”, but as a result present “interesting buying opportunities,” says Luina. 

Another hot topic in Europe recently: defence tech. 

Luina says Hamilton Lane would “absolutely” invest in defence companies and funds. “The entire military needs to change its approach towards modern warfare; we’ve seen a lot of changes on the battlefield that translates to the need for different technologies, and geopolitically, the world is in a very different place than it was just a few years ago,” says Luina. Some of Hamilton Lane’s clients, who previously drew hard lines around investing in defence, are waking up to “a new political reality and have changed that approach, and so we’re seeing it opening up from a client base as well.”

The firm hasn’t done any direct defence deals in Europe yet, but it’s invested via its funds and “have a number of them on our radar,” says Luina.

Could the US and Europe end up like the US and China?

So far this year has been marked by a dramatic shift in the geopolitical landscape, led by president Donald Trump’s far more protectionist stance and the threat of a global trade war. 

Though Luina hasn’t seen a dramatic change in US LPs’ appetite for European funds, he thinks it’s too early to tell: “We don’t know where the tariffs are going to come out in the longer run; it’s just been such a massive shift back and forth that I think a lot of people are waiting to see what the true implications are.” 

One potential risk, if things carry on? Europe could go the way of China and become a much more segregated market from the US. 

“We did see this kind of bifurcation already happen between China and the West, where those two markets have really split off and there has been a massive decline in Western capital going into China,” says Luina. “Personally, I hope we don’t get to the point where it looks anything like that.” 

But a similar split could have interesting outcomes for Europe. “There is the potential to create more regional leaders,” he says. “Instead of having one winner that comes out of the US or out of Europe that captures the global market, I think that there may be more opportunities for multiple winners.” 

Global turmoil hasn’t sparked a big exodus of US LPs wanting to ditch their European funds, or vice versa, from what Luina has seen. 

“This is a slower moving asset class. If people are making the decision, you won’t feel it for another few years,” he says. However, “I do think that there is some interest for people to stay more local.” 

But he believes that investors, no matter their HQ, don’t want to miss out on the AI boom: “The epicentre of that is in the US right now, [but] to say you’re only going to invest in one place when there’s such a large potential change I think can be a bit dangerous.”

What Hamilton Lane is looking for in VC managers

Luina says Hamilton Lane is eyeing both established and emerging managers. Since Hamilton Lane’s new VC fund launched in February, it’s invested in about 15 fund managers, three of which are in Europe — which Luina thinks is “probably in-line with what we see as Europe’s overall market share of the global venture market”. It’s currently doing due diligence on another fund in Europe. 

Within Europe, “the Series A landscape is really well established; the seed landscape is, I think, a little bit more fragmented and our investment approach reflects that,” he says, adding that the firm has some “brand name” early-stage managers that it’s had long relationships with and continue to back in Europe.

One trend Luina is also watching and capitalising on: VCs leaving established firms to start their own first-time funds (think: former Accel investor Candice du Fretay starting her own fund). “Some of the best investment professionals at younger ages are looking to start their own firms, because some of these larger firms have become very top heavy, and take a really long time for these partners to grow into meaningful positions within their firms. 

“What we look for in emerging managers: they can be first-time funds, but they can’t be first-time investors. We need some sort of track record, some validation points that they are really strong deal makers.” He also wants some “celebrity” — those that are well-known or have deep access to one specific industry. 

Hamilton Lane primarily backs generalist VCs, investing in pre-seed through Series A in Europe. It’s less interested in later-stage European VCs, Luina says: “If you get in early on these deals, there’s managers who can have a competitive advantage at that stage; as the companies mature into growth investments, that becomes much more of a global market, and the relative competitive advantage of being local… starts to decline a bit.” 

VC valuations are still way off

As a big LP, Hamilton Lane is having the same conversations with its fund managers as seemingly every other investor right now: when and how can they get their money back in this exit-constrained market.

But Luina says the firm is also talking about another big topic: “Valuations: how aggressive have managers been to mark their portfolio to market? People are all over the map.”

Even four years on from the boom times of 2021, “some are way below where we think the market value should be, some are way above it. In order to really be a good fund investor, you really have to dig into the underlying portfolio. You could have two GPs with the exact same portfolios, and one looks amazing on paper, and the other one looks terrible. And the reality is somewhere in between.” 

That means that funds are on opposite trajectories moving forward — and there’ll likely be a bigger bifurcation between VCs that are able to show better performance moving forward when their companies exit, and those that may struggle.