Secondaries Funds See Record Fundraising in First Quarter

Six secondaries funds secured $13.6 billion in investor capital in 1Q 2017, setting an all-time quarterly fundraising total and beating the previous record of $12.6 billion in 4Q 2014, according to Preqin’s Secondary Market Update: Q1 2017. The 1Q 2017 performance was notably higher than the previous two quarters, which raised a combined $10 billion in capital.

The average size of funds closed in the first quarter was $2.3 billion, with Strategic Partners Fund VII securing the most capital commitments at $7.5 billion. Four of the six vehicles closed raised at least $1 billion, according to Preqin’s report. The majority of secondaries funds sold were buyout (52%), and many other types including natural resources (13%) and real estate (3%).

“Q1 2017 proved to be a landmark quarter for the secondaries industry, which continues to go from strength to strength,” said Patrick Adefuye, Preqin’s head of secondaries products, in a news release. “Investors have committed a record level of capital to funds since the turn of the year with the potential for accelerated cash flows and outperformance of traditional private capital vehicles both proving to be driving factors behind the current market expansion.”

Looking ahead, almost two-thirds of secondaries fund managers anticipate spending more capital on secondaries in 2017 compared with 2016, according to Preqin’s year-end survey. Forty-eight secondaries vehicles are seeking an aggregate $34 billion in investor capital at the start of 2Q 2017.

Preqin found that strong performance is contributing to investor commitments, with median net IRRs for private capital secondaries funds exceeding 15% in each vintage year from 2008. Only one vintage in the past 10 years (in 2009) had a negative minimum IRR, the report said.