Evening Brief – 01.29.24
PE Secondaries Surge
Private equity secondaries continued to their impressive performance in the 2023, reaching more than $106 billion, according to new data from Setter Capital, a Canadian independent investment bank.
Volume increased 4.7% compared with the $101.5 billion in fiscal year 2022, with fund secondaries jumping more than 12% during that time as the impact of many global macroeconomic concerns weighed on fund liquidity.
Direct secondaries declined marginally by 4.6%, but two main subsectors of the asset class experienced significant volume declines across funds and directs.
While fund secondaries in leveraged buyout, venture capital, and private debt all increased during that period, at 14.4%, 9.5%, and 5%, respectively, real estate and hedge fund secondaries fell sharply, according to Setter data.
Real estate secondary funds and directs lost 26.5% to $2.19 billion, while hedge funds dropped 38.2% to $120 million. Secondaries of fund of funds and energy funds also showed declines of 31.6% and 9.2%, respectively.
Setter stated that, while the breadth and number of buyers continue to grow, the 21 largest buyers in the market drive the most important activity.
The largest buyers, those who deployed more than $1 billion in FY2023, contributed 74.1% of the market’s total volume, down slightly from 75.9% in FY2022. According to Setter, the top five purchasers transacted nearly $36.billion in volume, accounting for over one-third of total activity in 2023.
There were 1693 deals in 2023, with an average value of $62.8 million. The number of deals fell 11.8% compared to 2022, while the average deal size increased by 18.8%.
Pension funds were the most active sellers, accounting for 36.3% of total volume, while insurance firms made up 17.6%.
General partners (excluding fund-of-funds and secondary funds) accounted for 16.6% of all sales, as they used the secondary market to produce liquidity for their limited partners and find new ways to boost their assets under management.
Buyers estimate volume to reach more than $140 billion in 2024, a considerable 31.7% rise from the previous year, said Setter.