The timely rise of private equity secondaries
Opinion 3 minute read

The timely rise of private equity secondaries

07 October 2019

The private equity market is flexing its muscles. No longer seen as the poorer relatives, private equity secondaries have now carved out space as a proper asset class, with new trends revitalising the market.

Following a rather modest first half of 2019 for the private capital secondary market in terms of fundraising, we’re now seeing increased investor interest around the world.

At a recent TMF Group roundtable on ‘advanced secondaries’, the feeling was that general partners (GPs) have an improved appetite for secondaries. The prospects for the second half of the year are promising, with several large funds making moves. It’s expected that the secondary market will continue to grow and play an important function for diversified portfolios.

Data from Preqin highlighted that, during the first half of this year, a total of $2.4 billion at final close was raised by just seven secondaries funds – well off the pace from last year, when funds raised around $30 billion. However, it’s widely thought that this dip was simply a lull after the record-breaking volumes of 2017 and 2018.

Preqin – and others – predict that fundraising for the full year will rebound impressively. Transaction volume has accelerated, with more deals maturing and completing. Preqin  highlighted that, as H2 2019 began,  51 secondaries vehicles were seeking a combined $77 billion in capital. The largest secondaries fund has a target of $18 billion, which represents the sixth-largest private equity fund ever raised.

New trends taking hold

Recently we’ve seen something of a strategic shift, with private equity firms adopting a more systematic approach in terms of supporting technology, people and portfolio company valuation.

When a private equity fund approaches the end of its lifespan before the optimal exit window emerges for its single remaining asset, transferring the portfolio company into a new vehicle is proving increasingly popular.

As the secondaries market matures, single-asset deals have grown in popularity, with a plethora of data available to help price them. These single-asset restructurings, often behind the growth of privately-owned companies such as Uber and Airbnb, allow GPs to maintain ownership of the company supported by secondary capital.

There’s a healthy outlook for these GP-led fund restructurings and indeed wider limited partner (LP) appetite.

Boosting economic cycles

It can be argued that the 2019 bull market across the US and Europe is in part driven by private markets reinvesting in companies. 

This more robust approach is fuelling the private equity secondary market, which covers the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds.

Whereas the public markets are volatile, the private markets are much less so. They are cashflow-based and generating steady returns. Private equity secondaries help investors to find liquidity solutions, with secondary sales proving a viable solution for LPs to exit early from private equity investments. We’re also seeing secondaries being used for downside protection in market cycles.

Partnering with TMF Group

We’re proud to be a globally-recognised fund administrator. TMF Group is also the largest independent provider of Special Purpose Vehicle (SPV) management for private markets transactions. We offer deep experience and expertise in secondaries deals.

We get to know each client in detail and administer the strategy that best suits their individual needs. We deliver integrated services across multiple jurisdictions, with a single point of contact – who speaks your language – to manage your transactions seamlessly. No other company has our reach or our global network of experts. Why not benefit from a streamlined, one-stop approach?

Contact us today to find out how we can support your capital market activities.

Written by

Thomas Erichsen

Head of Fund Services, EMEA
Thomas

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