Investors Bullish On PE Secondaries

Mar 21 2013 | 9:52am ET

More than half (53%) of the investors polled by Preqin for its latest private equity report believe the secondary market is “of core or growing importance” to their p.e. portfolios.

The survey was based on analysis of secondaries transactions, pricing, buyer and seller appetite, and fund-raising conditions as well as interviews conducted with over 40 institutional investors worldwide in March 2013.

Preqin found that 45% of the funds sold on the p.e. secondaries market in 2012 were boom-year vintages (2006-2008) that had underperformed.

The survey also revealed that 43% of LPs expect secondary market activity to increase in 2013 while 55% expect it to match 2012 levels.

Public and private sector pension funds account for 25% of potential secondary market sellers, followed by banks (12%)  and insurance companies (9%).

Of those LPs looking to sell fund interests on the secondary market, 66% plan to exit buyout funds.

A full 67% of investors interviewed in March 2013 (up from 50% in March 2011) were motivated to buy assets on the secondary market by the opportunity to purchase fund interests at a discount to NAV.

Secondaries funds that closed in 2012 raised an aggregate $21 billion, almost double the amount raised by funds that closed in 2011. The average secondary fund last year was $1.4 billion, compared to a 2011 average of $596 million.

AXA Private Equity closed the largest secondaries fund ever  raised in June 2012, with AXA Secondary Fund V attracting $7.1 billion from investors. Dover Street VIII is the largest secondaries fund in market by target size, which had already raised $3.1 billion by November 2012, beating its target of $3 billion.

“The vast majority of investors in private equity expect secondary market activity to match or exceed the high levels witnessed in 2012,” said Preqin marketing analyst Patrick Adefuye, in a statement.

“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. A bumper year for secondaries fund-raising means a large amount of capital is available to deploy among specialized secondaries players. 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.”


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