Preqin: Private Capital Secondaries Fundraising Slumps in Q2

Jul 20 2017 | 7:06pm ET

Fundraising for vehicles concentrating on private capital secondaries slowed during the second quarter, according to new data from Preqin, although the first-half tally is almost 80% of the total take in all of 2014.

The pace during 2017’s second quarter, five funds closed for an aggregate $4 billion, was the slowest level of capital raised since the third quarter of 2015, Preqin said. It comes after a record Q1, which saw nine funds raise $19 billion. Despite the deceleration, 2017 is still on track to be the largest ever for secondaries fundraising. 

In addition, there are increasing signs of stratification and diversification in the market, Preqin’s research reveals. The second quarter saw the close of the largest-ever preferred equity financing vehicle, while funds currently in market include a potentially record-breaking vehicle focusing on infrastructure stakes. 

Other key highlights from Preqin’s latest Secondary Market Update:

  • The largest fund closed in the quarter was the $1.9bn Hamilton Lane Secondary Fund IV. Forty-five secondaries funds remain in market. These vehicles are seeking a combined $32 billion, down from $38bn that was sought by 44 funds at the start of the year. 

  • Secondaries funds have posted higher median net IRRs compared to the wider private capital industry in every vintage year from 2007. 2014-vintage secondaries funds have a median net IRR of 19.7%, more than twice the median performance for 2014-vintage private capital funds as a whole (9.6%). 

  • Dry powder for secondaries vehicles has reached $87 billion as of the end of June 2017. 

“The opening quarter of 2017 saw a record level of fundraising activity for the private capital secondaries market,” said Patrick Adefuye, head of secondaries products  for Preqin, in the statement. “Following that, it is to be expected that the industry would pause in Q2, as many investors will have made commitments to funds closed recently. In that context, low quarterly fundraising figures should not be taken as a negative sign for the overall growth and health of the secondary market. In fact, despite large fund closures in the first half of the year, an almost equal number of funds have launched in the period, an indication that fund managers believe there is still substantial investor appetite for secondary fund commitments. 

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. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products. 

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