BlackRock Sees More Record Highs in Secondaries Market — Evening Brief – 09.13.24
As dry powder rises and transaction volumes reach new highs, BlackRock believes the secondary market still has the opportunity to expand, as buyer optimism and pricing in the niche alternative investment sector rise.
In its H2 Market Update, the global asset manager emphasized the widespread adoption of the secondary market by both Limited Partners (LPs) and General Partners (GPs), which has resulted in a new volume record of $140 billion, surpassing the previous record of $132 billion established in 2021.
The report also points to an ongoing market opportunity as dry powder has climbed to $190 billion industrywide. BlackRock also discovered that while capital is still concentrated at the large end of the market, new players and approaches are also being noticed.
The numbers show a 14% increase from the end of 2023. According to BlackRock, the capital overhang would only last 1.3–1.4 years if the market saw closed transaction activity of $140 billion to $150 billion this year. This fact underscores the supply-demand imbalance the team has pointed to previously.
“As we approach the end of the year, we expect the acceleration of deal activity to continue, with the market on track for what could be the highest year on record for closed transaction volume,” the report stated.
As managers rely on continuation vehicles to give their LPs liquidity, GP-led secondaries are expanding. At $31 billion, GP-led volume showed a 94% year-over-year increase.
Mid-cap GPs made up over half (55%) of the transaction volume. In general, the mid-cap space is a source of opportunities under $500 million in size that may feature more favorable deal and asset characteristics with a focus on tech-focused transactions over healthcare and business services, which had received significant attention in 2023.
In the first half of the year, LP-led secondary volumes accounted for 57% of total closed transaction volume. This year’s first half was the highest on record for volumes, with $41 billion in closed transaction volume, indicating a 64% yearly increase.
BlackRock also noted that as many LPs are still experiencing net negative cash flows, there is an increasing appetite to transact on partial commitments or newer vintages to maintain GP relationships and maximize price. This too is feeding into the larger growth trend.
According to BlackRock, lower interest rates and possible green shoots in exit activity may be mitigated by broader macro concerns such as public market volatility and an unstable political environment. Prices are expected to remain consistent with the first half of the year due to the combination of these variables.