By Susan Barreto, Alternatives Watch
Year-to-date through mid-July the secondary marketplace has added $42 billion according to a mandate data and manager launch data collected by Alternatives Watch.
What the second half of 2020 will look like is anyone’s guess, however, with investors continuing to clamor for private equity investment opportunities even as dry powder remains at historically high levels.
Secondaries saw a surge two years ago with approximately $72 billion being placed in secondaries in 2018, according to industry pioneer in the space Coller Capital.
According to the J.P. Morgan Asset Management’s second quarter figures, secondary market pricing and volume fell year over year between 2018 and 2019. Secondary buyouts fell from $180 billion in 2018 to just over $140 billion in 2019.
But by January 2020 fundraising in the secondary market took off again with firms such as Blackstone, Ardian and StepStone leading the way
The largest asset raise was from the $96 billion global private equity firm Ardian that announced it had closed a record $19 billion in secondary private equity investments in June. The secondaries pool includes $5 billion for co-investments, and significantly exceeds Ardian’s preceding secondaries fund, ASF VII which came in at $14 billion in 2016.
At Blackstone, the private equity secondaries portfolio continues to grow, returning 3.8% in the second quarter and over 20% for the 12 months through June. Over the same timeframe, Blackstone reported inflows of more than $6 billion with $3 billion in the second quarter alone.
In July, though, the New York private equity giant had two secondary funds close – Strategic Partners Real Estate VII LP for investment in real estate secondaries ($1.9 billion close) and Strategic Partners Infrastructure III ($3.75 billion close).
“Over the past twenty years we have built one of the world’s largest private secondary platforms, which strongly positions us to capitalize on opportunities across the secondary market,” said Verdun Perry, senior managing director and global head of Blackstone’s Strategic Partners, which manages $47 billion in secondaries.
As of the end of the second quarter, Blackstone was sitting on $17 billion in available capital to put to work in the space.
Stepstone announced the closing of its fourth secondary fund in April. Officials said they surpassed their original $1.25 billion target and raised $2.1 billion from investors. Together with capital from separately managed accounts though the secondary private equity strategy raised $2.4 billion.
Since StepStone’s inception, the global secondaries team has committed US$4 billion across 114 transactions in the secondary private equity market.
Thomas Bradley and Mark Maruszewski head up StepStone’s secondaries practice, together with 25 members of StepStone’s global secondaries team.
The firm, which often advises pension clients on their private market portfolios, has more than $280 billion of private market allocations, including more than $62 billion in assets under management. StepStone uses a disciplined, research-focused approach to integrate fund investments, secondaries and co-investments across private equity, infrastructure, private debt and real estate asset classes.
“We are fortunate to have a sophisticated, diversified group of global investors as limited partners,” said Maruszewski. “They have shown unyielding support for our secondaries strategy – one that seeks to capture attractive risk-adjusted returns by utilizing StepStone’s global platform to construct diversified portfolios of high-quality assets that can outperform without the use of leverage.”
Limited partners in the fund include of both existing and new investors from around the world. Sovereign wealth funds, public and corporate pension plans, insurance companies, endowments and foundations, family offices, and financial services and advisory firms are among StepStone’s clients.
Family offices in particular are showing great interest in the space. According to the recently released UBS Global Family Office Survey, family offices see the dry powder that private equity is sitting on as well as the deal multiples getting more expensive.
One family member and U.S. based CIO commented in the UBS report that they saw pockets of opportunity in dealing with a secondary manager because an investor having issues in a their portfolio can sell private equity holdings inexpensively and the secondary manager can buy them at an attractive price.
And on such optimism, the market for secondaries seems poised to continue to thrive.
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