Boom Time in the Secondary PE Market

(March 22, 2013) - For established managers in one corner of the alternatives industry, fundraising has only gotten easier since the crash.

Secondary private equity funds that closed in 2012 secured an aggregate $21 billion in capital commitments, nearly doubling 2011's total and tripling the 2008 inflows, Preqin data has shown. Analysts for the alternatives data/research firm drew from its secondary market monitor to compile their report on the industry.

Just as institutional assets are increasingly concentrated with the largest management firms, investors are choosing to place capital with a select number of established secondaries managers. The average size of funds at closing has more than doubled in one year, from $596 million in 2011 to $1.4 billion last year.

Heralding this trend, the largest secondary private equity fund ever amassed closed in 2012. AXA Private Equity shuttered its Secondary Fund V in June, having amassed $7.1 billion from investors.

"A bumper year for secondaries fundraising means a large amount of capital is available to deploy among specialized secondaries players," said Patrick Adefuye, a Preqin managing analyst for funds of funds and secondaries. "Coupled with a considerable 72% of institutional investors that stated it was either a possibility or highly likely that they would purchase fund interests on the secondary market over the next two years, this indicates 2013 is set to be a strong year for private equity secondary market activity."

Investors seem to agree with Adefuye: 98% of limited partners interviewed for the report predicted activity in 2013 would match or surpass 2012's robust levels.

The analyst named a few separate forces that are contributing to the market's expansion. "Institutional investors under pressure to conform to new regulations will likely bring portfolios of fund interests to the market, along with non-distressed sellers that increasingly view the secondary market as a portfolio consolidation tool," Adefuye said.

While the majority of investors interviewed gave bullish predictions for the industry, their optimism did not tend to translate into concrete plans. Roughly a quarter (26%) of limited partners said they were interested in purchasing private equity interests via the secondary market over the next two years.