Secondary volumes decline in 2016 – survey

Trade in Asia-focused assets – LP positions in funds as well as direct secondary deals involving fund restructurings and the purchase of individual minority stakes in companies – came to $3 billion, down from $3.2 billion in 2015. While this represents the smallest regional year-on-year decline for any region, Asia volume is still only about one eighth that of North America.

There was also a drop-off in Asia Pacific-based sellers of secondary assets. They accounted for 5.6% of the market in 2016, down from 20.1% the previous year, although these numbers are often skewed by infrequent large portfolio transactions in what remains a relatively shallow LP community.

Large-scale portfolio deals were in shorter supply globally. The 10 largest buyers – defined as those that deployed more than $1 billion in 2016 – accounted for 58.4% of total volume, down from 62% in 2015 as their combined purchases slipped to $24.6 billion from $30.7 billion. Average deal size for the entire secondaries market fell 11.8% to $38.8 million.

The slowdown in secondaries activity was apparent in the first half of 2016, with Setter reporting $18.6 billion in deal flow compared to $20.6 billion for January-June of the previous year. Greenhill Cogent identified a similar trend, recording its lowest six-month total since 2013.

Many in the industry saw this as a temporary setback born of macroeconomic volatility, and others noted that the headline numbers do not fully reflect middle market activity. Another view is that the secondaries market faces a watershed as a result of unsustainable amounts of capital flowing into the space – there has been a glut of fundraising in recent years – and consequent price inflation.

Fund secondaries continue to make up the bulk of assets transacted, with a 76.1% share compared to 23.9% for directs. Private equity also remains the dominant market segment, with $34.8 billion in assets purchased last year, well ahead of real estate, hedge funds, infrastructure, and agriculture and timber.

Pension funds accounted for 37% of sales volume in 2016 and they are expected to hold a similar share this year. However, survey respondents predict a lot less activity from banks – this could be linked to the Trump administration’s pledge to loosen restrictions on financial institutions imposed under the Volcker Rule – and more activity from sovereign wealth funds in 2017.

The Setter report is based on a survey of 94 of the 119 most active and regular buyers in the secondary market. The statistics do not capture more than 1,000 opportunistic and non-traditional buyers, including sovereign wealth funds, several of which have established dedicated secondaries teams.

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• Topics
• Secondaries
• North America
• Greater China
• North Asia
• South Asia
• Australasia
• Secondaries
• Asia