PE Secondary Market Poised for Growth in 2010

(April 28, 2010) — According to a recent survey by Preqin, the private equity secondary market is poised for significant growth in 2010, with 48% of investors in private equity funds considering it increasingly valuable to their strategies.

“We anticipate this growth in activity on the secondary market will continue over the course of the year and into 2011,” said Preqin’s Helen Kenyon in a news release, adding that potential sellers, put off by pricing last year, are more likely to put portfolios of funds back up for sale now that prices are improving and discounts are narrowing.

The study released Monday found that 2009 witnessed record-breaking fundraising for the private equity secondary market, with $22.9 billion raised by the 20 funds to close that year. Additionally, 30% of institutional investors are considering buying fund interests within the next two years. Yet, the value of secondaries deals slumped to about $12.3 bilion in 2009 from $20 billion the previous year.

Furthermore, investors are increasingly considering selling stakes in private equity funds in the secondary market: 13% of investors polled will consider selling fund interests in the next 24 months, as of Q2 2010, compared to 10% in Q2 2009.

And 40% of investors surveyed view the secondary market as a useful portfolio rebalancing tool, which shows that the secondary market will continue to play an important role in the private equity industry in the future.