As funds currently in the market hold final closes, we would expect fundraising for the full-year to rebound significantly
The average size of secondaries funds closed in 2018 was at $876 million
Private capital secondaries fundraising has seen modest activity in the first half of 2019, with seven funds raising just $2.4 billion from investors, according to a recent report by alternatives data tracker Preqin.
The first half of last year saw secondaries raising capital worth almost $14 billion across 23 funds, the report said. Secondaries funds acquire limited partner (investors in private equity, venture capital fund) interest in private equity and venture capital funds as well as stakes in such fund managers themselves or their portfolios.
For limited partners, this provides a way to realize the locked value of their investment and actively manage their private capital allocation.
The average size of funds closed has also decreased to $395 million in H1 2019, the report said. The average size of secondaries funds closed in 2018 was at $876 million.
However, Preqin noted that fundraising prospects appear strong for the second half of the year.
A number of large funds are currently in the market and many have already held at least one interim close. In total, there are 51 secondaries funds seeking a combined $77 billion, the majority of which plan to focus on private equity stakes.
“Investor appetite has remained strong for secondaries investment. The advantages are clear: secondaries funds offer attractive returns, and most have cashflow projections on much shorter timescales than other private capital strategies. Although fundraising has dipped in the first half of the year, it seems to be simply a lull after the record-breaking fundraising volumes seen in 2017-18," said Patrick Adefuye, head of secondaries at Preqin.
As funds currently in the market hold final closes, we would expect fundraising for the full-year to rebound significantly, he said.
“There are also increasing opportunities for fund managers to put capital to work, although competition is increasing – it will be a key test to see if fund managers can maintain returns in the face of pricing pressure,’ Adefuye added.
On the deal-making side, Preqin noted that record transaction volumes from 2018 have continued through the first half of this year with potential buyers outnumbering sellers.
“Private and public pension funds each represent the largest proportion (13%) of sellers within the secondary market. For potential buyers, buyout (68%) and venture capital (58%) represent the largest pools of funds available on the secondary market," the report said.