Pensions drop off as secondary sellers; expected to roar back this year: surveys

  • Secondary deal volume roared back last year
  • GP-led deals helped drive activity
  • Pensions pulled back from selling

Pensions, which have historically been among the biggest sellers of PE stakes on the secondary market, took a step back from the market last year, according to fresh data on secondary-market volume.

The expectation is pensions will come roaring back as sellers this year, helping drive secondary volume.

Public and private pensions made up 21 percent of the seller universe last year, according to intermediary Setter Capital. That was a steep drop from the 37 percent the segment represented in 2016, says Geoffrey Bevans, a Setter analyst.

This year, pensions are expected to climb back to around 35 percent of the seller community, Setter said.

Setter’s annual survey reached 89 secondary buyers. The survey pegged total private-market secondary volume, which includes PE, venture capital, real estate, infrastructure and hedge funds, at $60.7 billion in completed transactions. Total volume was up from $42.2 billion in 2016, Setter said.

Evercore, meanwhile, put total secondary volume last year at about $54 billion. Evercore’s data includes real estate and infrastructure funds but not hedge funds.

Both surveys found that direct secondaries represented larger chunks of total volume, with Setter pegging it at about $18 billion last year — a 79 percent jump from 2016. Evercore found direct secondaries and GP-led liquidity processes represented 31 percent of total deal volume, up from 29 percent in 2016.

Such deals will likely continue to represent larger percentages of total market volume as they become more routine ways for LPs to manage their portfolios.

“So many of [GP-led liquidity processes] have been executed now, there’s an emerging or emerged template for how they should be executed,” said Nigel Dawn, head of Evercore’s Private Capital Advisory Group.

Evercore drills down even further into the data to show that of the GP-led deals last year, 55 percent were restructuring-type transactions in which assets were moved out of older funds and into new vehicles. Forty-five percent of GP-led deals were tender offers, in which LPs had to the option to either sell their interests in a fund or hold.

In the restructuring deals (which Evercore calls asset deals), 38 percent chose to roll their interests with the GP into the new vehicle, and 62 percent chose to sell their stakes.

In the tender offers, however, 78 percent of LPs chose to hold and 22 percent to sell — a low number that illustrates the challenge of the tender offer process: generating enough LP sellers to make the deal worth it for the buyer.

Action Item: Check out Setter’s report here:

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