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Volumes traded globally reached $162bn in the so-called secondary market, the place traders in private equity or different private funds promote their stakes to new traders for money, or the fund managers themselves promote firm stakes to new funds.
The whole was a forty five per cent enhance on the earlier 12 months and greater than 20 per cent increased than the earlier peak in 2021, in line with an evaluation by funding financial institution Jefferies.
Secondary offers have boomed in current years as private equity corporations have struggled to exit investments by means of IPOs or gross sales at sufficiently engaging valuations, ensuing in a dearth of money distributions to the funds’ backers.
Fund traders — “restricted companions”, or LPs — have as a substitute turned to the secondary markets to attempt to discover consumers for his or her stakes, whereas the private equity corporations who handle the funds — “basic companions”, or GPs — have additionally sought alternative routes to money in their investments.
“The record secondary volume final 12 months was pushed by the sustained low ranges of [cash] distributions at a time when many LPs have been longing for liquidity,” stated Scott Beckelman, world co-head of secondary advisory at Jefferies.
Each restricted companions — usually establishments comparable to pension funds, endowments or sovereign wealth traders — and basic companions bought record volumes on the secondary market final 12 months, in line with Jefferies.
Restricted companions bought $87bn value of fund stakes, a 36 per cent enhance on the earlier record set in 2021, after a dearth of offers in the primary 12 months of the pandemic sparked a rush to money out and rebalance portfolios that had develop into too closely weighted in direction of private equity.
Investors in funds normally promote their stakes at a reduction, however Jefferies stated the hole narrowed final 12 months to six proportion factors under internet asset worth for buyout fund stakes, from a 9 proportion level hole the 12 months earlier than.
Jefferies stated the rise in value indicated confidence that private equity managers would quickly be capable to promote the underlying portfolio corporations, as Wall Road readies for a return of dealmaking beneath the second Trump administration.
Buyout funds have contended with muscular antitrust regulators in current years, each in Europe and the US. Nevertheless a altering of the guard on the primary competitors authorities in the US, the EU and the UK might function a prelude in direction of a extra laissez-faire method to mergers and acquisitions and assist facilitate exits.
Costs for stakes in private credit score funds rose much more sharply that ones in buyout autos — from 77 per cent of the worth of the belongings to 91 per cent — after the launch of new funds devoted to purchasing second-hand stakes in private debt funds.
Pricing for actual property and enterprise stakes remained barely extra depressed, at 72 per cent and 75 per cent of the worth of the underlying belongings respectively.
“You might have so many underlying LPs saying: ‘I haven’t had distributions out of my enterprise portfolio happening effectively over 24 months now’,” stated Todd Miller, who additionally serves as world co-head of secondary advisory for Jefferies.
Private capital corporations additionally turned to the secondary markets, with basic companions promoting $75bn of belongings in 2024, 44 per cent greater than the 12 months earlier than.
The overwhelming majority of that — $63bn — got here from these managers promoting their belongings from one of their funds to a more moderen fund managed by the identical agency, a so-called continuation automobile.
Continuation autos have develop into a preferred choice for private equity corporations to return cash to the traders in one fund with out having to discover a purchaser for the entire of a portfolio firm — significantly the place such a sale won’t obtain a beneficial valuation for the supervisor.
Three of European private equity agency EQT’s roughly 30 exit occasions final 12 months concerned transferring holdings between EQT funds, an individual accustomed to the matter instructed the Monetary Occasions, though all three additionally introduced in exterior traders.
