Secondaries GPs expect record 2022 – Investec

Harriet Matthews
27 June 2022

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The vast majority (80%) of secondaries fund managers are expecting secondaries dealflow in 2022 to exceed the record amount seen last year, according to Investecтs fifth Secondaries Market Report.

The continuing popularity of GP-led secondaries are driving a significant part of this optimism, with 97% of participants stating that they are currently participating or intend to participate in such deals, versus 86% a year ago.

The outlook is a sharp contrast to that of private equity-focused GPs and private markets LPs. As reported, Rede Partners' latest Rede Liquidity Index revealed that LPs are expecting a drop in liquidity due to the challenging exit environment.

Global secondaries activity reached USD 130bn in 2021, according to Evercore's Secondary Market 2021 Year-End Survey Results.

More than three quarters (76%) of GPs surveyed by Investec said that they were open to doing GP-led deals with one asset, with 67% saying they would consider single asset preferred equity transactions.

Still, more than half (59%) of secondaries managers said that they thought the levels of GP-led deals would remain similar in 2022, with 28% expecting a slight increase.

The scepticism of managers around such deal has dropped over the past year; 41% of managers said that they thought deals were being done that should not be in the latest market report, versus 68% last year.

Although GP-leds are gaining in market share, the survey also points to a resurgence of LP trades. When it comes to LP stake deals, 70% of those surveyed said that they expect to be more active in these transactions in the next year, with 2016 cited as the most popular vintage.

Almost all secondaries managers (97%) said that they were using leverage for their deals, with 73% stating that this is to enhance returns. Of those, 97% used subscription lines, versus around 25-30% who reported using these five years ago.

In spite of the generally positive outlook, valuations are naturally on the mind of secondaries market participants. Around half (48%) of respondents said that competition for high-quality assets is driving up valuations, while 21% said that the level of dry powder in the market was contributing to this.