Back to School: H1 secondary-market volume up 26 pct, on record pace

Secondary-market volume this year is on pace to beat 2017’s record totals, intermediary Setter Capital reported.

First-half 2018 saw 746 secondary transactions valued at $36.7 billion. This is up 26 percent from the year-earlier period, when 874 secondaries totaled $29.1 billion, Setter Capital Volume Report H1 2018 shows.

The $36.7 billion includes $23.06 billion of fund sales and $13.64 billion of directs, the report said.

The Toronto secondary advisory firm defines secondaries as transactions involving LPs selling interests to other LPs or GPs selling equity positions in private companies to a buyer.

All the activity is due to cash-rich secondary funds raising record capital that must be put to work, said Peter McGrath, a Setter managing director. Pricing is also at an all-time high, while LPs have become more comfortable selling their stakes than they were five years ago, he said.

“It’s very common for LPs now to consider trimming an old fund that they view as legacy or a single commitment to a manager they no longer like,” he said.

Setter questioned 125 secondary buyers in early July. Respondents include 69 secondary funds, 41 funds of funds, 10 hedge funds, four investment consultants and a pension.

Secondary funds were the most active buyers this year, comprising 82 percent, or $30.23 billion, of purchases. Funds of funds came in second with almost 11 percent, or $3.95 billion, and pensions totaled 4.8 percent, or $1.76 billion.

Pension funds and GPs (those that are FoF or secondary) were the most active sellers. Pensions accounted for 23.2 percent of sellers while GPs were 31.2 percent.

The biggest trend this year? Direct secondaries volume skyrocketed 77 percent to $13.6 billion, McGrath said. Directs typically involve restructuring or liquidating an old fund, he said.

A maturing secondary market is causing the rise in directs, he said. “More GPs are embracing [secondaries]. They’re becoming more prevalent. It was not as much three to five years ago.”

Competition for deals remains high. One-fifth of respondents, more than 21 percent, said they felt competition was worse than last year while 77 percent said it was similar to H1 2017.

LBOs were the most popular PE fund purchased in H1, accounting for 81 percent of funds bought, or $13.51 billion, the report said. Venture funds were second with 7 percent of funds purchased, totaling $1.4 billion. Funds of funds, with 5 percent, or $960 million, placed third.

Action Item: For more information contact McGrath at