The Timely Rise Of Private Equity Secondaries

Author:Mr Thomas Erichsen
Profession:TMF Group

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...

To continue reading