Secondaries dealflow sees boost from primary fundraising, macro climate – Coller Capital

“Fundraising in private capital markets is becoming more difficult and is taking longer, due to the fact that managers are coming back faster – this is more important than the macro side,” Aguerre said, emphasising one of the well-acknowledged pressures on LPs' time and capital.

Although GPs' increasingly frequent foray into the primary fundraising market might be the strongest driver, the macro picture is nevertheless still prompting LPs to consider the secondaries market, Schad said.

“Macroeconomic factors including inflation and exposure to underlying leverage are acting as drivers for LPs to manage and sell parts of their portfolios,” he said. In spite of these macro woes, “fire sales” in the secondaries space are still uncommon, he added.

“LPs might have liquidity difficulties, but this is unlikely to be due to the poor performance of their private markets funds,” Aguerre said, citing one factor behind the low instance of fire sales in the market. “But it’s inevitable that this situation will have a positive pricing impact for secondaries.”

Credit secondaries boom
Schad highlighted the growth potential of credit secondaries; the area is forecast to grow significantly, he said. This asset class did not exist at the time of the GFC in 2008 and truly took off in 2015-16, he said, meaning that potential sellers are increasingly coming to market.

The GP-led side of this market is nascent, Schad said, but GPs could increasingly look to this area to manage their portfolios. “2014-15 vintage private credit funds often have exposure to instruments including equity and non-performing credit in their remaining portfolios, for which they will need to find a solution,” he said.

Coller Capital already manages an established secondaries strategy for private equity LP stakes and GP-led deals. The firm's separate credit strategy was launched more recently; it held a final close for its debut credit secondaries fund in February 2022 on USD 1bn, surpassing its USD 750m target. 

Finding a balance
Although much has been made of the rising portion of the market that is taken up by GP-led deals, Aguerre argued that too much should not be made of this split. “The split between GP and LP deals doesn’t matter so much – the split varies based on buyside appetite,” he said.

“Since 2012-13, LPs have been adapting to GP-led deals and they are now very common,” he said. “And on the GP-led side, the start came in 2014-15, and GP-leds are now very clearly a portfolio and asset management tool.”

Asked if certain sectors of the market or its portfolio have been more affected than others, Aguerre said that “private equity is not a pro rata reflection of the economy or GDP as a whole, meaning that the industry is still likely to do well in a downturn.”

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