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Secondaries To Grow in Europe

European financial institutions and private equity professionals are expecting more growth in the secondary market than their U.S. counterparts, according to a poll conducted by the law firm Weil, Gotshal & Manges.

The finding was presented as part of a larger survey on European and U.S. private equity. The firm surveyed 140 private equity professionals and financial institutional executives in Europe and the U.S. this past summer.

Fewer than half of the survey’s U.S. respondents believed that activity in the secondary market for private equity partnership interests would increase over the next 12 months. But, more than 60% of European financial institutions and 60% of European private equity professionals said that they believed the secondary market would be more active.

“Europe is just coming around a little bit stronger this year,” says Lawrence Penn, advisor and director with The Camelot Group, a private equity advisory firm with offices in Europe and the United States. Penn says that while secondary volume is increasing on both continents, Europe’s is growing at a faster rate. The Camelot Group estimates that 60% of the secondary deals that it worked on so far this year has involved European overseas transactions.

Tim Jones, an investment director with London-based Coller Capital, says that in Europe and the United States limited partners are far from finished cleaning up their private equity portfolios. “We’re expecting to see quite a lot of deal flow coming out of Germany over the next year or two as insurance companies rebuild their balance sheets.”

Jones also says that U.S. banks still have assets to sell and that U.S. pension funds, traditionally not active sellers on the secondary market, are starting to consider secondary sales more seriously. For instance, Coller Capital made a large purchase of buyout fund interests from the State of Connecticut (see PE Week, 11/22/04). Jones declined to comment on the Connecticut transaction.

The secondary market worldwide has spiked over the past few years. Secondary buyers and advisors estimate that secondary deal volume for 2004 could reach $7 billion. This is up from last year’s estimated volume of about $5 billion.

Large European secondary deals announced this year have included Coller Capital’s purchase of Abbey National’s private equity portfolio for between $554 million and $646 million, and its $90 million purchase and spin out of a Dresdner Bank unit and AXA’s $782 million deal for private equity assets of Credit Agricole.