Secondaries Market Shines — Evening Brief – 06.26.24
Institutional investors are progressively using secondaries to effectively handle their portfolios and address liquidity challenges in today’s market.
In 2023, according to research from Jasmin Capital, secondary funds achieved an unprecedented year of fundraising, raising over $110 billion across more than 90 funds, double the volume raised in the previous year.
“LPs are increasingly turning to the secondary market to actively manage their portfolio” said Gilles Morel, a partner at the alternative assets investment advisor.
Morel stated that by selling fund stakes that have experienced substantial increases in net asset value before disposing of all companies in the portfolio, LPs are being offered the chance to reallocate their assets, enhance their performance, and effectively manage their cash flows. But “liquidity needs remain one of the main reasons driving an LP to sell in the current environment.”
Buyout fund stakes make up approximately 75% to 80% of the volume in the secondary market. Venture capital & growth and real assets & credit each account for approximately 10% to 15%, Jasmin’s 2024 Secondaries Index showed.
Approximately 30% of limited partners (LPs) exhibit a higher level of sensitivity towards selling in the secondary market, while 55% demonstrate a similar level of sensitivity. This indicates that LPs consider the secondary market as an integral part of actively managing their investment portfolios.
Venture capital and growth investments represented only 10% of the volumes led by LPs, while 34% of respondents reported being more inclined to sell assets due to the challenging exit climate.
“Secondary investors see 2024 as a transition year with the progressive recovery of exits – generating distributions and creating value – and 2025 as a more normative year,” said Morel, adding that investors now have higher confidence in the macroeconomic backdrop, believing that the worst is behind us. “We observe that the pricings of buyout fund stakes have been improving by 3 and 4 percentage points compared to last year.”
Jasmin is forecasting a secondaries transaction volume of around $137 billion in 2024, an increase of 20% compared to 2023.