Secondaries buyers expect 30% volume drop over next two months - research

Greg Gille
19 March 2020

Tweet
Facebook
LinkedIn
Google plus
Send to

A majority of secondaries buyers recently surveyed by advisory firm Setter Capital expect their activity to go down over the next two months, as the coronavirus crisis worsens.

The report is based on responses from 39 firms described by Setter as some of the most active and regular buyers in the secondary market worldwide. The survey was conducted in mid-March, as most countries were only starting to put more severe coronavirus lockdowns in place, leading Setter to state that the average predictions should be viewed as a best-case scenario.

Unsurprisingly, three quarters of respondents expect a recession is incoming, lasting for an average of 10 months, with the remainder saying they are not sure yet. No respondent thought the market is not heading for a recession.

Two thirds of respondents expect their pace of buy-side activity to slow down over the next two months, by an average of 29.7%. A quarter of respondents expect purchasing to decrease by up to 40%, while the largest group (11 buyers) put this figure at 40-60%. Three respondents stated their buy-side activity would all but dry out, with an 80-100% drop.

That said, five buyers (around 11% of respondents to that question) appear opportunistic and expect activity to go up in the next two months.

On average, buyers estimate that it will take 9.4 months for the market to return to normal levels of buying and selling. As a result, respondents expect 2020 volume to decrease by 28.5% from the record volume of $84.4bn in 2019.

Similarly, the buyers surveyed expect secondaries fundraising for 2020 to decrease by a quarter from the record level raised in 2019.

Pricing is expected to go down too given the diminishing buy-side appetite: for LBO funds, respondents estimate that current pricing should be at around 77% of 2019 NAV, versus 102% in Setter's December 2019 price report (a 25% drop).