Secondaries: all systems go following bumper 2017

Following somewhat of a slump in 2016, the global volume of private equity secondary transactions increased by a healthy margin last year to reach new records. Placement agent Triago calculated the aggregate value to be in the region of $45bn in its latest market update, while adviser Setter Capital recorded an even greater increase year-on-year to around $51bn in its own report. It is also worth bearing in mind that these figures tend to be on the conservative side, given the less transparent nature of the secondaries market and the number of opportunistic investors.

Setter noted that north American sellers continued to feed the market, accounting for 52% of all transactions in volume. European sellers, meanwhile, sold around $17bn of exposure, continuing to account for slightly less than one third of the market.

Price is right
This enthusiasm on the sell-side is motivated, in large part, by the fact that pricing remained very robust in 2017. According to Triago, the typical fund purchased on the secondary market is currently selling at 96% of net asset value (NAV), with large buyout funds in particular trading almost at par to NAV.

This attraction is then fuelled by the amounts of capital pouring into the secondary space in recent months, helped in no small part by the fact that performance seems to follow suit. A study by Triago tracking the performance of 84 secondary funds from recent vintages found that these returned 25.7% on average over the past four years.

But this is also driven by the increased use of leverage in secondary transactions, a trend noted by both Triago and Setter in their latest reports. The former estimates that leverage equated to almost a quarter (23%) of the aggregate transaction value in 2017 – including the growing use of deferred payments and preferred equity. Meanwhile, a survey of 89 secondaries firms by Setter found that 38% of respondents believed the level of debt in the market increased in 2017. No respondent noted that the market became less leveraged.

With all these trends still very much at play, it is not surprising that only 18% of respondents to Setter's survey expect transaction volumes to shrink in 2018. It is more likely that activity will match, or perhaps even exceed, the 2017 record, with Triago noting that dry powder on the secondaries buy-side is currently estimated to sit around $122bn.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• Secondaries
• Secondaries
• UK / Ireland
• France
• DACH
• Nordics
• Benelux
• CEE
• Southern Europe
• Secondaries
• Triago