The secondaries market has been flooded with record levels of cash, as investors sought to capitalize on what they see as a buyer’s market for private equity stakes.
According to Preqin, a provider of private markets data, the 11 secondaries funds that closed in the first half of 2020 raised $44 billion — far surpassing 2019’s full-year total of $26 billion raised across 26 funds.
“This exceptional capital total is partially motivated by the expected impact of Covid-19, as 89 percent of those funds closing in H1 2020 secured capital above their initial targets — a sign of solid investor demand,” Preqin said.
The other main driver behind the mid-year fundraising total was the closure of several mega funds, including the largest secondaries fund ever raised, Ardian’s ASF VIII. The fund closed in June with $19 billion in commitments — “smashing its $12 billion target,” Preqin said.
“With other mega secondaries funds currently in market and yet to hold a final close, the second half of 2020 has the potential to match H1’s figures and make 2020 the most successful year ever for secondaries fundraising,” Preqin said.
Despite the surge in fundraising, secondaries trading activity has been muted so far this year, with Commonfund predicting in April that deal volume could drop by as much as 55 percent.
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“When a global pandemic was declared in March, many market-watchers and participants predicted a significant increase in sale activity as distressed sellers faced liquidity needs and portfolio balancing was required,” Preqin said. “Four months into the crisis and there has been little sign of forced sales.”
This is likely due to the influx of government aid, according to Preqin, as well as private market firms taking longer to mark down the value of assets.
Still, most investors surveyed by Preqin in April indicated that the pandemic would have a positive impact on the secondaries market over the longer term — “potentially due to increased market activity and a more favorable climate for buyers,” Preqin said.
“When buyers and seller meet in the middle of their expectations, we could begin to see additional activity in H2 2020 and into 2021,” Preqin said.
Secondaries funds will certainly have plenty of cash to put to work when deals pick back up: According to Preqin, dry powder stood at $125 billion at the end of June.
“With an excess of buyers and fierce competition for the best-quality assets, prices may not fall as far as buyers would wish,” Preqin said.