Some 53 per cent of investors interviewed by Preqin in March 2013 believe the private equity secondary market is of core or growing importance within their private equity portfolios, suggesting the secondary market has the potential to grow further in the future.
Forty-five per cent of funds sold on the private equity secondary market in 2012 were of vintage years 2006-2008; many of these funds, which were raised during the boom years, have ultimately underperformed, which has motivated secondary market sales.
A total of 43 per cent of LPs expect secondary market activity will increase in 2013, and a further 55 per cent expect activity levels to match those witnessed in 2012.
Public and private sector pension funds represent a quarter of potential secondary market sellers, followed by banks (12 per cent) and insurance companies (nine per cent).
Some 66 per cent of LPs looking to sell fund interests on the secondary market plan to exit buyout funds, while 67 per cent of investors interviewed in March 2013 cited the opportunity to purchase fund interests at a discount to NAV as a motivation for buying assets on the secondary market, an increase compared to 50 per cent that named the same benefit in March
Secondaries funds that closed in 2012 raised an aggregate USD21bn, almost double the amount raised by funds that closed in 2011.
The average size of secondaries funds that closed in 2012 was USD1.4bn, more than double the 2011 average of USD596m.
AXA Private Equity closed the largest secondaries fund ever raised in June 2012, with AXA Secondary Fund V attracting USD7.1bn from investors.
Dover Street VIII is the largest secondaries fund in market by target size, which had already raised USD3.1bn by November 2012, ahead of its original target of USD3bn.
“The vast majority of investors in private equity expect secondary market activity to match or exceed the high levels witnessed in 2012. 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,” says Patrick Adefuye, managing analyst – funds of funds and secondaries at Preqin. “A bumper year for secondaries fundraising means a large amount of capital is available to deploy among specialized secondaries players. Coupled with a considerable 72 per cent 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.”
