Preqin: Private Capital Secondaries Reach New Heights in 2017

Feb 23 2018 | 1:49pm ET

The private capital secondary market had a banner year in 2017. The fundraising market saw records in the number of funds closed and total capital raised, according to a newly released Preqin report.

The report finds that secondary buyers are increasingly targeting fund managers: a third of buyers purchased fund interests from fund managers or funds of funds, twice as many as in 2016.

However, there are signs that competition is rising. The majority of secondary buyers reported that pricing was higher in 2017 than the year before across almost all private equity fund types, and they are increasingly turning to non-traditional transactions such as fund restructurings or stapled secondaries.

Key Private Capital Secondary Market Facts:

  • 35 secondaries funds closed in 2017, raising a combined $40 billion. This is a record for both the number of funds closed and total capital raised. 
  • Secondary transactions through the year totaled an estimated $58 billion. This is significantly above the previous record of $42 billion seen in 2014. 
  • The largest proportion of secondary buyers (82%) cited portfolio management as the primary motivation for sellers. Liquidity was cited by 71%, the second largest share. 
  • Increasing proportions of secondary buyers purchased fund interests across almost all investor types. In particular, 34% of buyers purchased interests from funds of funds, up from 17% that did so in 2016. 
  • 79 percent of secondary buyers engaged in fund restructurings in 2017, up sharply from 62% that did so the year before. However, the proportion that made tender offers fell from 48% to just 21%. 
  • More than 50% of buyers reported that pricing was higher in 2017 than in 2016 for all private equity fund types except venture capital. 
  • The majority (61%) of secondary buyers now use a secondaries intermediary for at least some transactions. More than a third (37%) sourced the majority of their deals through intermediaries in 2017. 
  • Secondaries funds have maintained strong performance: median net IRRs exceed 15% for every vintage year from 2009 to 2015. 

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 47,000 professionals in 90 nations use the company’s products.

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