The market for secondary sales of private equity (PE) stakes is experiencing unprecedented activity this year as investors look to exit ageing assets due to a cash crunch and a slowdown in dealmaking, according to a report by the Financial Times.
Pension funds and endowments, which have seen limited cash payouts from their unlisted investments, are driving a surge in these once-niche transactions.
According to industry experts, 2024 is on track to break all-time records, with projections reaching up to $150bn in secondary sales, a 25% increase from 2023, surpassing the previous record of $132bn seen in 2021.
The surge in activity reflects the ongoing challenges in the $4tn buyout industry, which has been hit hard by rising interest rates and a significant reduction in dealmaking. As a result, private equity firms are holding on to unsold investments longer, with over $3tn in un-exited assets. This has led to diminished returns for investors, who are now seeking liquidity by selling their holdings, often at a discount.
According to Matthew Wesley, Global Head of Private Capital Advisory at Jefferies, secondary sales now account for 14% of all private equity exits, a significant rise from the 4-5% levels seen in 2019 and 2020.
Despite the challenging environment though, buyers are increasingly willing to acquire fund stakes at smaller discounts, with some estimates suggesting that buyout fund stakes are being priced between 93% and 98% of their reported value. This is up from steeper discounts seen in late 2022 and early 2023, where some stakes were sold for as little as 80 cents on the dollar.
The shift has been fuelled by strong fundraising efforts from specialist buyers, such as Ardian, Hamilton Lane, StepStone Group, and Lexington Partners, which raised a record $93bn in 2023 — a 160% increase from the previous year.
