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Cebile Capital releases annual ‘Secondaries Outlook Report’

Cebile Capital, a secondaries adviser and placement agent to the private equity and alternative asset management industry, has released its annual ‘Secondaries Outlook Report’ for 2016.

Cebile surveyed 250 secondaries market participants for their experience of market activity in 2015 and expectations for 2016.
Advent, CVC and EQT were Europe’s most demanded GPs in 2015. Buyout flow names predominated in the US, with Hellman and Friedman the most sought after, followed by Apollo and Carlyle.
Deal volume in 2015 was roughly equivalent to 2014, at USD45 billion. Although volume in 2016 is expected to drop to USD37-40 billion due to equity market volatility, the collapse in energy prices and macroeconomic slowdown in the emerging markets.
Seventy six per cent of secondaries market participants did fewer than 10 deals in 2015. It highlights an existing gulf between large institutions and the rest of the market as all respondents transacting USD1 billion or more completed more than 10 deals. This indicates that the secondaries market is bifurcated with a handful of buyers having the ability to deploy more than USD1 billion per year.
Most respondents were satisfied with the amount of capital they deployed in 2015 with 81 per cent achieving or exceeding target deal volumes.
Ninety one per cent of secondaries buyers are looking for a return threshold over 15 per cent on individual transactions, and a minimum cash return multiple of 1.3x capital invested. This illustrates a contradiction of current market talk on secondaries buyers compromising on returns.
Eighty one per cent of respondents reported that they did not use leverage in their deals; another contradiction of market talk that buyers use leverage aggressively to hit price targets and ‘juice up’ returns in an increasingly competitive environment. In fact only nine per cent reported use of leverage at deal or fund level, these respondents all reported pre-leverage return objectives at over 15 per cent.
The most typical sellers in 2015 were private equity fund of funds, followed by family offices and public pension funds in succession. In contrast to previous years’ findings, regulatory driven sellers such as banks and insurance companies did not feature significantly. The survey indicates the driving themes for sellers as the need to crystallise liquidity in fund of funds; a desire to free up capital in non-core assets for family offices and endowments and a shift in strategy towards putting more capital into fewer GP relationships among pension funds.
Pricing remained strong in 2015 averaging 89 per cent of net asset value, comparing favourably with 2014 levels and close to record highs. Respondents reporting below average pricing were those pursuing niche strategies such as; seasoned venture, smaller European buyout funds, and fund of funds, showing that lower pricing is probably more indicative of assets traded than general price trends. Strong pricing was supported by factors including overhang of capital as ‘dry powder’ (estimated currently around USD65 billion); competition due to proliferation of secondaries buyers with non-traditional market entrants and the belief that macro conditions are still on the upswing of the business cycle.
Sunaina Sinha, Managing Partner of Cebile Capital, says: “2015 was another strong year for the secondaries market. We expect the volatility in equity markets to cause deal volumes to trend lower in 2016. Competition amongst secondaries buyers for deal volume will remain very high given the overhang of dry powder in the market today.”

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