Sponsored Content

Private Equity Secondaries: Assessing Opportunities in a Growing Market

After years of strong growth, what’s next for investors in PE secondaries?

Sponsored by 


When investors look at public markets today, many see high current valuations, low expected returns, and a likelihood of increased volatility. Against this backdrop, it’s little surprise that more than a few are increasing their focus on private markets, and on private equity (PE) specifically. Their interest is amplified by a shift in the public-private balance of company ownership. With more companies going private or staying private for longer, allocators who want to be invested in growth over the next decade have even more reason to consider private equity.

There are several ways for institutional investors to access private equity today: the traditional route of GP/LP structures; co-investments alongside those structures; secondary markets; and direct, flexible-hold strategies.

This II interview with Konnin Tam, Managing Director and Co-Head of Secondaries and Liquidity Solutions at BlackRock Private Equity Partners, is one of a three-part series on creating persistent alpha in private equity and is focused on private equity secondaries, which involve the sale and purchase of investors’ existing interests in PE funds and portfolios.

A lot of people are concerned that we’re late in the economic cycle. How does this affect the market for secondaries?

I think you need to consider the effects on both the supply and the demand side. On the supply side, we think the belief that we’re late in the cycle is prompting PE investors to consider repositioning their portfolios in advance of the next downturn. So, we’re seeing an increasing number of sellers that are motivated by either a desire to lock in what they view as attractive underlying fund valuations or by a desire to generate some liquidity to reinvest into other opportunities in PE or in different asset classes.

On the demand side, we think that buyers are more consciously factoring late-cycle dynamics into their asset selection, underwriting and structuring. So, we’re seeing greater interest in less-levered and higher-growth assets, as well as in assets that have more flexible debt packages or that offer greater secondary-market discounts.



When you consider the environment from the perspective of both buyers and sellers, it makes sense that this is shaping up to be a record year in terms of secondary-market volume. If you believe that we’re late in the cycle, then it may be prudent to pare back or reposition your portfolio. At the same time, if you are an informed buyer and can properly navigate the environment, there are opportunities to take advantage of the supply that is coming to market to acquire assets with counter-cyclical properties.

We’ve seen tremendous growth in sponsor-led secondaries in recent years. What are the biggest challenges and opportunities in investing in these deals?

In a sponsor-led secondary — which can be defined as one in which the PE manager is partnering with a secondary buyer to offer liquidity for some part of an existing PE portfolio — there are several unique challenges. I think the biggest ones revolve around transparency and alignment of interests among stakeholders. The rationale for the manager doing a sponsor-led deal needs to stand up for their investors to be supportive of the deal. There also needs to be a true status-quo option for existing investors, meaning that they’re not forced to sell if they don’t want to. Ultimately, successful sponsor-led secondaries need to benefit the sellers, the buyers, and the PE manager, and that makes these transactions quite complex, but it can also create interesting opportunities for buyers and for PE firms that can craft an aligned solution.

Because of that increased transactional complexity, we believe the market is underwriting such sponsor-led secondaries at a higher level than traditional secondaries. In addition to that “complexity premium,” sponsor-led secondaries often carry a unique opportunity from a portfolio-construction perspective. Sponsor-led deals, by their nature, tend to be more concentrated than highly diversified portfolio deals, so buyers may be able to fill in gaps in certain areas of a PE portfolio, such as strategy, industry, or geography.

What is the role of secondaries in investors’ portfolios and how has that changed in recent years?

It used to be that secondaries were primarily used by investors that were new to private equity, as a means to get invested quickly in a risk-mitigated and diversified way. By purchasing a shorter-duration, highly diversified portfolio in the secondary market, it’s possible to get immediate vintage-year diversification, with exposure to a number of managers across different strategies, geographies, and industries.

While these new entrants to private equity continue to play a role in driving capital into the market, we now also see seasoned PE investors maintaining, or in some cases increasing, their allocations to secondaries. I’ve talked about secondaries as a counter-cyclical and opportunistic strategy. I think seasoned investors are maintaining an allocation partly because of those characteristics. We also think that an allocation to secondaries adds resilience to private equity and private markets portfolios, due to the benefits of additional diversification and the ability to price in more factors in a partly funded portfolio, among other factors.

Because of these potential benefits, we do think more and more private equity investors consider secondaries to be an integral and consistent part of their PE portfolios. The way the secondary market has evolved over the years is analogous to the way the broad PE market has evolved. Private equity used to be seen as an alternative investment, now it’s a core one for many institutional investors. And secondaries used to be considered a niche part of the PE market, but now they are a core holding for many PE investors as the sheer size of the market expands and secondaries become a regularly accepted portfolio management tool on both the buy side and the sell side.

How do you see the secondaries market evolving in the future?

In a little over a decade, we’ve seen the market evolve from just single- or multi-fund portfolio transfers to encompass dozens of different kinds of transactions, including sponsor-led deals, team and portfolio spinouts and carveouts, real asset secondaries, private credit portfolios, preferred equity, and synthetic secondaries, which replicate the economic outcome of a secondary transaction without actually transferring the underlying fund portfolios. So, there’s been a great deal of innovation in the market in a relatively short amount of time, really in response to the dynamic and complex asset class that is global private equity. We expect that to continue, and we believe that market participants will continue to develop new transaction types to address new needs and opportunities.

We also think market transparency and the speed of execution will continue to evolve and improve, but inefficiencies will persist as well. I think one area where we’ll see a good deal of innovation is in the quality of the analytics. We think of the secondaries market as data-rich, but analytics-poor, so we believe it’s ripe for future advancements in analytics that will allow investors to leverage more of that data.

For more information, click here.

© 2019 BlackRock, Inc. All rights reserved.

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any BlackRock Funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

In the U.S., this material is for Institutional use only – not for public distribution.

In Canada, this material is intended for permitted clients only, is for educational purposes only, does not constitute investment advice and should not be construed as a solicitation or offering of units of any fund or other security in any jurisdiction.

In the United Kingdom and the European Economic Area, this material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. In the event where the United Kingdom leaves the European Union without entering into an arrangement with the European Union which permits firms in the United Kingdom to offer and provide financial services into the European Union (“No Deal Brexit Event”), the issuer of this material is: BlackRock Investment Management (UK) Limited for all outside of the European Economic Area; and BlackRock (Netherlands) B.V. for in the European Economic Area, however, prior to a No Deal Brexit Event and where a No Deal Brexit Event does not occur, BlackRock Investment Management (UK) Limited will be the issuer. BlackRock (Netherlands) B.V.: Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Trade Register No. 17068311. For more information, please see the website: www.blackrock.com. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock (Netherlands) B.V.

For qualified investors in Switzerland, this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended.

For investors in Israel: BlackRock Investment Management (UK) Limited is not licenced under Israel’s Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder.

DUBAI DFSA ISSUE This information can be distributed in and from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited - Dubai Branch which is regulated by the Dubai Financial Services Authority (“DFSA”) and is only directed at ‘Professional Clients’ and no other person should rely upon the information contained within it. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved this information. This information and associated materials have been provided to you at your express request, and for your exclusive use. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution would be unlawful under the securities laws of such. Any distribution, by whatever means, of this document and related material to persons other than those referred to above is strictly prohibited.

In South Africa, please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the South African Financial Services Board, FSP No. 43288.

In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to “Professional Investors” (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong.

In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

In Korea, this information is issued by BlackRock Investment (Korea) Limited. This material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies.

In Taiwan, Independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600.

In China, this material may not be distributed to individuals resident in the People’s Republic of China (“PRC”, for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services.

Issued in Australia and New Zealand by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL) for the exclusive use of the recipient who warrants by receipt of this material that they are a wholesale client and not a retail client as those terms are defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA). This material has not been prepared specifically for Australian or New Zealand investors and may contain references to dollar amounts which are not Australian or New Zealand dollars and financial information which are not prepared in accordance with Australian or New Zealand law or practices.

For Other Countries in APAC, this material is issued for Institutional Investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction.

In Latin America, for Institutional Investors and Financial Intermediaries Only (Not for public distribution). This material is for educational purposes only and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. It is possible that some or all of the funds mentioned in this document have not been registered with the securities regulator of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America.

In Argentina, only for use with Qualified Investors under the definition as set by the Comisión Nacional de Valores (CNV).

In Chile, the offer of each security not registered with the Comisión para el Mercado Financiero (“CMF”) is subject to General Rule No. 336 issued by the SVS (now the CMF). The subject matter of this offer may include securities not registered with the CMF; therefore, such securities are not subject to the supervision of the CMF. Since the securities are not registered in Chile, there is no obligation of the issuer to make publicly available information about the securities in Chile. The securities shall not be subject to public offering in Chile unless registered with the relevant registry of the CMF.

In Colombia, the offer of each Fund is addressed to less than one hundred specifically identified investors, and such Fund may not be promoted or marketed in Colombia or to Colombian residents unless such promotion and marketing is made in compliance with Decree 2555 of 2010 and other applicable rules and regulations related to the promotion of foreign financial and/or securities related products or services in Colombia.

In Mexico, for institutional investors and financial intermediaries only. Investing involves risk, including possible loss of principal. This material is provided for educational and informational purposes only and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund or security. It is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of Mexico. If any funds, securities or investment strategies are mentioned or inferred in this material, such funds, securities or strategies have not been registered with the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, the “CNBV”) and thus, may not be publicly offered in Mexico. The CNBV has not confirmed the accuracy of any information contained herein. The provision of investment management and investment advisory services is a regulated activity in Mexico, subject to strict rules, and performed under the supervision of the CNBV. BlackRock Mexico, S.A. de C.V., Asesor en Inversiones Independiente (“BLKMX”) is a Mexican subsidiary of BlackRock, Inc., registered with the CNBV as an independent investment advisor under registration number 30088-001-(14085)-20/04/17, and as such, authorized to provide Investment Advisory Services. BlackRock México Operadora, S.A. de C.V., Sociedad Operadora de Fondos de Inversión (“BlackRock MX Operadora” and together with BLKMX, “BlackRock México”) are Mexican subsidiaries of BlackRock, Inc., authorized by the CNBV. For more information on the investment services offered by BlackRock Mexico, please review our Investment Services Guide available in www.BlackRock.com/mx. This material represents an assessment at a specific time and its information should not be relied upon by you as research or investment advice regarding the funds, any security or investment strategy in particular. Reliance upon information in this material is at your sole discretion. BlackRock México is not authorized to receive deposits, carry out intermediation activities, or act as a broker dealer, or bank in Mexico. For more information on BlackRock México, please visit: www.BlackRock.com/mx. Further, BlackRock receives revenue in the form of advisory fees for our mutual funds and exchange traded funds and management fees for our collective investment trusts.

In Peru, this material is for the sole use of Institutional Investors, as such term is defined by the Superintendencia de Banca, Seguros y AFP.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BlackRock® is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.