Increased Year End Activity Expected from Secondary PE Markets


October 1, 2013

Deal flow and potential investments across private equity (PE) secondary markets have been hotly debated topics throughout 2013. The consensus in the PE community has been that deal making has been slow from the latter part of 2012 through the first six months of the year. This wasn’t entirely unexpected; 2012 was the first year in living memory that vast numbers of funds publicly announced they were struggling to raise money during funding rounds, with some even returning non-invested capital to investors as a result of this ‘deal drought.’

Contradictory Numbers
A Cogent Partners report analysing the first half of 2013 confirmed these expectations, highlighting a ‘meagre’ $7billion of transactions for the fund for the year through June 30. However, several smaller PE funds have stated that 2013 is in fact proving to be a healthy year with deals happening as would normally be expected.


The condition of secondary private equity markets appears to be understated because of this. The number of headline-grabbing deals, or rather the lack of them, has made everyone think the secondary market is struggling; the reality is that it’s achieving expectations for some.


Toronto based Setter Capital, for example, reported $15billion of deal volume in the first half of 2013, with an impressive year-end projection of $34billion, meaning growth of almost 30% between June 30 and December 31. Setter’s $2.1billion transaction volume in the first half represented their best first six months’ performance ever.

Room to Grow
Yet Setter believes that even that number could be conservative, as they based their analysis on a survey they conducted of the secondary markets, but that did not include in excess of 1,000 ‘opportunistic and non-traditional’ investors, who might have been making significant investments through the first half of 2013.
Setter’s Peter McGrath believes that their findings prove the secondary private equity market is bigger than has been traditionally thought.


McGrath said, “In the week following the release of the survey, many buyers contacted us to discuss the results and it seemed each day we would find out about another large transaction we had not been aware of from the first half. The reality is many sellers feel confident selling funds and sometimes portfolios without the need for a full-blown auction.


The broader market never knows about these sales by design.” Several secondary market buyers have said there hasn’t been enough activity to justify the $15billion figure, or the $34billion year-end projection, although buyers, funds, and private equity analysts all agree the final half of 2013 is likely to be lucrative for all.

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