Despite a bit of a lag at year’s end, the global secondaries market was hot in 2019, with the value of completed transactions reaching an all-time high of more than $85 billion, Buyouts has learned.
Volume last year was up 7.2 percent compared with 2018, which saw just under $80 billion in transactions, according to a Setter Capital report to be issued later today. This marks a third year of record-breaking growth in global secondaries activity.
In contrast with dollar flows, the number of deals in secondaries rose only marginally in 2019, to 1,597 in all. This points to the central role played by transaction sizes, the report showed, which increased 7 percent year over year to an average of $53.5 million.
Growth was reflected across a range of asset types, including private equity assets (funds and directs), which continued to account for the lion’s share of activity in 2019. Purchases of PE assets, totaling $77.8 billion, expanded 10.8 percent relative to 2018.
Over the longer haul, however, market expansion is being led by more diversified buyer activity, Peter McGrath, Setter’s founder, told Buyouts. “We’ve seen buyers steadily broaden their scope of interest in terms of asset types, directs versus funds, and deal structures,” McGrath said. “This has been – and will continue to be – a key to the positive momentum.”
GP-led deals played a major role in activity last year, as managers continued to use the secondaries market to drive liquidity. In fact, GPs were the most active sellers in 2019, accounting for 24 percent of volume, followed closely by pension funds, which had a 23 percent share.
Despite the strong overall results, there were signs that global secondaries activity was lagging late in the year. The value of completed transactions was $39.4 billion in the second half, down 14 percent from H1 2019. The number of deals in H2 2019 also declined compared with the earlier period.
McGrath said this perhaps indicates greater uncertainty on the part of buyers: “My sense is buyers are increasingly leery about a possible downturn. As a result, they pulled back a bit in the year’s final months.”
The 100 respondents to Setter’s survey, which include the market’s 10 top buyers, nonetheless sounded an optimistic note in their expectations for 2020. They told McGrath and his team they see further growth in global secondaries activity next year, projecting volume at more than $89 billion.
The feverish pace of deal-making in 2019 was not matched on the fundraising trail. In all, 32 secondary vehicles collected $36.9 billion on a global basis in 2019, according to data provided by Buyouts‘ sister publication Secondaries Investor, down from the two prior years.
Fund sizes, however, expanded last year thanks in part to Blackstone’s Strategic Partners, which collected $11 billion for its eighth pool. This helped push the average fund size to more than $1.1 billion, the data showed.
There is a good chance that fundraising will bounce back in 2020. In January, Lexington Partners said it secured $14 billion for a ninth secondaries fund. Other market players, such as Ardian, are also expected to wrap up mega-funds in the months ahead.
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