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Investor Appetite for Secondaries Funds – February 2013

Although buyout and venture capital funds are typically the most sought after fund types from institutional investors in private equity funds (57% of investors on Preqin's Investor Intelligence database have an appetite for buyout funds and 65% have a preference for venture funds), secondaries funds continue to remain an attractive investment prospect for LPs looking to hold diverse investment portfolios.

Preqin’s Investor Intelligence database currently tracks 4,776 investors in private equity funds, with almost a quarter of those LPs (24%) having either previously invested in a secondaries fund or stated a preference for such vehicles. Secondaries funds are a particularly common investment choice for North American LPs, which account for 60% of the total number of LPs with a preference for this fund type. Europe-based investors account for 29% and the remaining 11% of LPs that have shown an interest for secondaries vehicles are from Asia and Rest of World.

Of these LPs with an appetite for secondaries funds, 20% are public pension funds, with private sector pension funds accounting for 18% of investors. Foundations represent 16% of investors interested in this fund type, 10% of investors are insurance companies, while endowments and fund of funds managers represent 9% and 8% respectively.

Among the public pension funds actively investing in secondaries funds is Belmont Contributory Retirement System, which recently issued an RFI for a secondary fund of funds manager. The pension fund is soliciting proposals from investment management firms to manage a secondary private equity mandate for the $69mn pension fund. The retirement system is looking to commit up to $2mn with this manager, who must have a track record of at least three secondaries funds, and a team of at least eight investment professionals. Another investor known to have recently shown an interest in secondaries funds is Nebraska Investment Council, which made a $40mn commitment to Dover Street VIII, having recently held its second close at $3.1bn.

Posted by Philippe Alteirac on 05-Feb-2013

Keywords: private equity, secondaries, investors