Survey: PE Markets More Liquid, But More Inflows Needed

Feb 13 2015 | 7:54am ET

A new survey states that a large share of private equity investors believe the asset class has become more liquid. However, few believe the advances are sufficient to meet current market needs.

SEI’s Investment Manager Services division conducted a survey of 212 investment professionals. According to its data, 47% of general partners (GPs), 36% of limited partners (LPs), and 33% of consultants agreed that the private equity market is “more liquid than it used to be and will continue to become more so.”

Meanwhile, just 22% of GPs, 19% of LPs, and 17% of consultants said the industry’s liquidity needs are currently being met.

“In the past, investors accepted a lack of liquidity as part of the price they paid to access private equity opportunities, but attitudes and expectations are changing,” said Jim Cass, Senior Vice President and Managing Director of SEI’s Investment Manager Services division. “The expansion of private equity trading venues, escalating institutional demands, and broadening market participation have combined to transform the face of the industry.”

The survey also explores other important topics for private equity professionals, including growth in the secondary market. The data suggests that the growing secondary market for private equity investments has played a major role in the easing of liquidity constraints.  

Once associated with the sale of troubled assets at deep discounts, the secondary market has become mainstream, with 2014 global transaction volume expected to surpass $30 billion, according to Private Equity International. 

In addition, 58% of LPs and investors in the survey said they have bought or sold assets on the secondary market, and a majority of all respondents said participating in the secondary market is “no longer taboo” for investment professionals.

Rising valuations have been a key factor in the growth of the secondary market, the report states. A majority of all respondents said the market is fairly valued, however, more than half of the LPs surveyed saw the market as overvalued. 

Only 1 in 10 respondents said the market is currently undervalued. 

Most respondents expressed concern with the valuation process, with only 8% agreeing that it is “generally fair and accurate.” Survey results show 4 in 5 respondents described the quality of valuations as “variable.”

The survey, “Solving the Private Equity Liquidity Challenge: a Work in Progress” was released on Thursday and is available on SEI's site, right here

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