Secondaries boom on hold

A quarter of private equity LPs plan to exploit the secondaries market to pick up bargains very soon, according to the latest research from industry data providers Preqin.

In a survey of 568 institutional investors conducted in the first five months of the year, 48% of respondents indicated they were planning to buy secondary positions, with 26% of these planning to do so ‘immediately’, and a further 60% revealed they anticipated making a purchase within the next 12 months, and 14% between the next 12 and 24 months.

The problem, as reported by EVCJ in the May issue, is that sellers are reluctant to part with their assets as the disparity between vendor price expectation and buyer willingness remains too wide for most.

Eleven percent of those surveyed said they planned to sell positions – 10% of these ‘immediately’, 43% in the next year, and 47% in the next 12 to 24 months.

Preqin said of the results: “One of the key factors we have encountered during our discussions with investors has been the lack of clear, readily available information on pricing for secondary transactions. Although reports of funds changing hands at massive discounts to NAV are true, there have also been transactions occurring at much more satisfactory levels for sellers. As a result, many investors remain uncertain as to the best course of action for their planned secondaries sales.

“One of the major issues for investors considering selling has been the expense and time involved. Gauging interest in funds on the secondary market can be a complex and lengthy process, and many investors have informed us that they would rather keep their identities private during the ‘feeling out the market’ initial stage.”

Preqin says that secondaries funds are looking to raise over US$30bn this year. Already we have seen HarbourVest hit cap by raising US$2.9bn for its over-subscribed global secondaries fund Dover Street VII from 197 investors. It is joined by Goldman Sachs’ US$5.5bn secondaries vehicle. Direct secondaries specialist Vision Capital raised €680m for its seventh fund in February.

Secondaries specialist Coller Capital is also planning a new fund, its sixth, this year. The firm’s fifth fund raised £3.3bn two years ago and is over 50% invested.