A whopping 43% of those surveyed (220 institutional investors) say they’ll consider buying secondary stakes this year, as opposed to just 10% who say they’ll consider selling stakes this year.
It’s a definite departure from the recent talk of over-saturated markets, full of desperate sellers with near-worthless portfolios. (And we mean literally near-worthless. I’ve been told that “it’s not an urban legend” that more than one desperate mega-fund LP has offered up its commitment for free if the taker will merely fill the capital calls.)
But realistically, if buyers and sellers can ever agree on pricing, there is probably plenty to go around—the survey notes that with $2.5 trillion worth of global private equity assets under management, a sale of even 10% would be significant.
The breakdown of sellers looked like this:
- Public Pension Funds: ~28%
- Private Sector Pension Funds: ~ 42%
- Endowments: 12%
- Insurance Companies: 17%
The study predicts that the number of transactions will pick up and basically attributes that to seller expectations falling. I happen to think that it’ll end up looking a bit like the M&A market. Rather than adjusting their expectations, sellers who don’t have to sell simply won’t. And we’ll see a very cold, very boring and almost non-existent M&A market. However, a sustained level of “have to sell” sellers might occur if the denominator effect continues. All of 63% of those surveyed are at or above their private equity allocation. Preqin’s explanation of seller’s motivations provides further insight:
…Gaining liquidity was the most popular reason given as to why they would be selling, with the denominator effect, rebalancing portfolios and wishing to exit poorly performing funds amongst the other responses.
Previously: Yet Another Way To Invest in Secondaries
Conversus Capital: “Like a REIT for PE Assets”
Want to Invest in a Big Secondary Fund? Here Are Your Options
What are “Secondary-Lite” Buyers Buying?