Preqin: Private Capital Secondaries Fundraising Hit Record $19B Through Q3/16

Oct 6 2016 | 8:31pm ET

Capital raised for private capital secondaries has reached a record $19 billion through the first three quarters of the year, according to new research from Preqin, surpassing the previous peak of $17 billion in 2014.

The third quarter saw eight funds raise a combined $3.8 billion, including closure of the largest-ever secondaries fund, while sizeable funds continue to come to market.

Through the first three quarters of 2016, 15 secondaries funds have raised $19 billion in capital commitments, beating the previous Q1-Q3 fundraising record seen in 2014 and 31% up on the total achieved in 2015 of $14 billion. The largest fund to reach a final close in Q3 was Strategic Partners VI RE, which raised $1.3 billion and was the first dedicated real estate secondaries fund to close in 2016. 

While substantial, that raise does not approach the size of the largest fund closed through Q1-Q3, the $10.8 billion Ardian Secondary Fund VII, which is the largest secondaries fund ever closed. 

Preqin’s research also reveals record activity in the private capital secondaries fundraising market at the start of Q4 2016. An all-time high of 44 secondaries vehicles are currently in market, targeting a combined $32 billion in investor commitments, compared to 32 vehicles seeking $28 billion at the start of the year. Large funds targeting $1 billion continue to dominate the fundraising landscape, Preqin said, representing more than a fifth of the funds in market, while collectively accounting for over three-quarters of the aggregate target capital. 

Other highlights from Preqin’s Q3 Secondaries report.

  • Average Fund Size: Despite seeing robust fundraising activity, funds closed in Q3 were smaller on average compared to funds closed in 2015. Vehicles closed in the quarter raised an average of $1.24 billion compared to $1.45 billion for funds closed the previous year. 

  • Largest Managers: By total capital raised in the last 10 years, France-based firm Ardian is the largest secondaries manager securing $31 billion of investor commitments. Five of the largest firms are located in Europe, with the other five headquartered in the United States. 

  • Fund Performance: Over the past 10 vintage years, only one (2012 vintage) secondaries fund is currently recording a negative net IRR. At the same time, the median net IRR for secondaries funds is currently showing gains of more than 10% in every vintage year since 2008. 

  • Secondaries Buyers: As of the end of Q3, Preqin tracks 908 potential buyers of funds on the secondary market; private equity fund of funds managers account for a fifth of all secondaries buyers, the highest proportion of any type, while public pension funds also account for a notable proportion (12%). 

  • Secondaries Sellers: As of the end of Q3, Preqin tracks 678 potential sellers of funds on the secondary market, up from 610 at the end of Q2. The largest proportion of sellers tracked (43%) are based in Europe, with a further 41% based in North America and 16% based in Asia and all other regions. 

“The secondaries market is becoming increasingly marketable to investors, due to its ability to provide accelerated cash flows and its significant upside potential,” commented Patrick Adefuye, Preqin’s head of secondaries products. “The growth of vehicles out on the road is another sign that firms are becoming more comfortable operating in the market with many now launching their second or third fund. 

“The average size of secondaries vehicles reaching a final close is set to surpass a billion for the second consecutive year – a testament to the strength of the industry,” he added.

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.

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