Preqin: Fundraising for PE Secondaries Funds Hits Record in 2H16

Jul 14 2016 | 12:13am ET

Fundraising for private equity secondaries hit a record in the second half of 2016, with the majority coming via Ardian’s recent close of its record-setting seventh secondaries fund, according to new data from Preqin. 

Some $14 billion in investor commitments were seen in the first six months of the year, $10.8 billion of which came from Ardian’s Secondary Fund VII. The total is an all-time high for the first half of a year, noted Preqin in a statement, and up $1 billion from the $13 billion raised in the first half of 2015. However, the five funds closed so far in 2016 represent a five-year low, well down on the record 17 vehicles that closed in H1 2014, added Preqin. 

The number of secondaries funds being marketed to investors has risen to a new high at the start of Q3 2016, the company’s research also showed, with 41 secondaries funds currently marketing globally. They are reportedly seeking a total of $22 billion, a lower level than at the start of 2013, 2014 and 2016. The vast majority of these funds are seeking $1bn or less (84%), but 7 funds are seeking more than $1bn, as a small group of experienced managers seek to raise larger and larger funds, Preqin found. 

Other key highlights from the Secondaries report: 

  • Secondaries vehicles closed in recent years have continued to grow in size, with the average size of funds closed in H1 2016 reaching a record $2.8bn. This marks the third annual increase in average fund sizes, up from $704mn for funds closed in 2013. 

  • Three of the five largest secondaries funds ever raised have closed in 2015 or 2016. Two each of the top five largest funds are managed by Ardian and Lexington Partners, with Coller Capital managing the other. 

  • Secondaries funds compare favorably with other strategies in terms of median net IRR; since 2008, secondaries funds have outperformed buyout, venture capital, real estate and infrastructure funds in every vintage year apart from 2009.
  • Secondaries Buyers: Preqin tracks 890 potential buyers in the secondary market as of Q2 2016; 44% of these buyers are located in North America, while 40% are based in Europe. Private equity fund of funds managers form the largest group of potential buyers, representing over a fifth (21%) of the total. 

  • Secondaries Sellers: Of the 610 potential sellers tracked by Preqin, private equity fund of funds managers and public pension funds make up the largest group of sellers, accounting for 13% and 12% of the total respectively. Europe is home to 44% of sellers, while 40% are headquartered in North America. 

“The first half of 2016 has seen record levels of fundraising in the secondaries market, reflecting the increased attractiveness of the secondaries market as investors become more familiar with the industry,” said Patrick Adefuye, head of secondaries products, for Preqin. “The record number of funds in market shows that fund managers are also increasingly viewing the secondary market as an attractive industry.

"However, while there are a growing number of new managers launching funds, the most established players are raising ever larger vehicles, which might attract the majority of investor commitments. 

Although fund of fund managers remain the largest proportion of both secondary stake buyers and sellers, it is notable that nearly all investor types are represented on both sides of the market," he added. "As the secondary market becomes an increasingly common tool for active portfolio management, and with a large amount of capital remaining in funds that are approaching the end of the lifespan, we may see even more buyers and sellers become active market participants.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products. 

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