Secondaries fundraising drops by half as LPs feel the pinch

The volume of PE secondaries vehicles holding final closes between January and September this year dropped 49% year-on-year, according to Secondaries Investor data.

The fundraising environment for secondaries vehicles has experienced a year-on-year drop as capital raising faces pressure on several fronts.

Private equity secondaries fundraising in the first three quarters of this year fell to $24.2 billion, according to data from affiliate title Secondaries Investor. This marks a 49 percent drop compared with the same period last year when such funds raised a record $47 billion.

The number of vehicles to hold final closes this year as of end-September was 33.

The fall comes as managers face a tough fundraising environment. Overstretched LPs are contending with the denominator effect on their portfolios, while managers roar back to market with raises.

Secondaries fundraisings are moving “in line with expectations,” with those that are out in market very confident that they will close where they want to close, a London-based managing director of a global advisory firm told Secondaries Investor.

With an increase of new LPs allocating to secondaries funds, it “doesn’t help that almost [every secondaries buyer] is fundraising,” the managing director said.

“The market is super busy and LPs are stretched both on capital and on time. The secondary industry is experiencing exactly the same thing… things are just taking a little bit more time.”

PE secondaries funds raised $47 billion in the nine months to the third quarter in 2021. However, 2022’s figure marks its fourth-highest January-September period since 2008. Lofty 2021 figures are followed by $45 billion in 2020 (11 percent) and 2016’s $26.75 billion (7 percent).

Blackstone’s Strategic Partners unit is set to surpass all record-defining figures by a considerable amount. The vehicle is on track to reach approximately $20 billion, Blackstone chief operating officer Jon Gray said on an earnings call this year. Strategic Partners Fund IX has collected $18.31 billion so far, according to Secondaries Investor data. The firm took the top spot in this year’s SI 50 ranking.

Ardian and Lexington Partners are both out seeking $15 billion for their flagship secondaries funds, ASF IX and Lexington Capital Partners X. If they reach their targets, they would beat their respective predecessors, which both collected $14 billion – the largest standalone funds dedicated to the strategy that have reached a final close.

Overall, private equity fundraising so far this year reached $516.9 billion as of end-September – a year-on-year decline of $98.6 billion. This year’s figure still represents the second-highest total recorded, surpassing previous Q1-Q3 records set in 2019 ($457.51 billion) and 2017 ($467.43 billion).