Secondary Investors Say Blackstone Is Their Top Pick

Blackstone Group is the most sought-after private-equity manager on the secondary market, according to the latest quarterly ranking by advisory firm Setter Capital.

A buyout fund managed by Blackstone was the top pick of investors in the secondary market in the third quarter, Setter announced in a report Wednesday. Bain Capital was the second most popular manager, followed by Advent International Corp. at No. 3.

Secondary funds have attracted record capital from investors this year partly because private equity portfolios have aged as buyout firms take longer to sell the companies they own. Investors who contributed to their buyout funds and have become impatient for a return on their capital, are selling their interests on the secondary market. The demand from buyers may signal how successful a private-equity firms will be raising its next investment pool.

"Strong secondary market demand suggests a fund is popular among limited partners and may be an interesting primary candidate," Setter said in the report.

While Blackstone’s No. 1 position was unchanged in the third-quarter ranking, Bain moved up one position and Advent rose two spots from No. 5. Apollo Global Management, which raised a record $24.7 billion buyout fund in the third quarter, fell in popularity among secondary investors during the the same period. Apollo fell to fourth place in Setter’s ranking, from No 2. in the second quarter.

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Secondary funds raised a record $14 billion in the first three months of 2017, according to financial data provider Preqin. While fundraising fell slightly during the second quarter, Preqin said in a report released in July that secondary funds could still attract unprecedented capital this year.

The trend is helping smaller investors gain exposure to buyout funds they may not be able to access when the pools were being raised by their high-profile private-equity managers.

While strong interest from secondary investors bodes well for buyout firms looking to raise new funds, there’s a flipside Setter’s rankings.

“Low secondary market demand suggests additional liquidity risk in the future,” Setter said, noting that private equity managers with little interest may have more difficulty raising funds.