LP stakes changing hands on the market

A recent issue of unquote" has recorded $11bn worth of funds raised for global secondaries, making the sector the fastest-growing part of the private equity industry today. Industry experts are claiming that around $100-130bn worth of interests in the primary market could come to the table this year, equating to a rise in turnover from historic averages of 2-3% of the total to 6-8%.

The increase can be attributed to experienced players raising more money, as well as newcomers entering the space. The $11bn raised recently came entirely from funds-of-funds rather than traditional secondaries players. Portfolio Advisors has been purchasing secondary fund interests since its first close in 2007; Goldman Sachs raised $5.5bn for its fifth fund-of-funds; Morgan Stanley will invest approximately 10% of its $1.14bn vehicle into secondaries; HarbourVest raised $2.9bn for its latest vehicle to invest in secondaries funds; and Wilshire's $615m eighth fund-of-funds will purchase LP interests.

In order to turn this increased competition into attractive returns, more complex deal transactions should be expected from seasoned secondaries specialists. They are already becoming increasingly creative with respective to attracting and securing deals. Indeed some may even purchase interests in funds-of-funds or - if they are not a secondaries fund themselves - even secondary positions in secondaries funds.

The consensus in the market so far, however, has been that secondaries have been a case of much talk and less action. On the other hand, deals that are being completed are often "quick and quiet" and rarely reach the public domain. One Nordic LP which is currently in the market to offload LP stakes from peers said the majority of deals are from HNWs with liquidity needs.

Nonetheless, the price gap is also present in this space, and market professionals expect prices to come down further towards the end of the year. In other words, more bargains to come, suggesting secondaries are indeed set to take off.

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