A Comparison of Net Cash Flow of Secondaries Funds with Traditional Private Equity Funds

by Gary Broughton

  • 18 Mar 2011
  • PE

Preqin currently holds cash-flow data for over 1,700 private equity funds. Using this data, a comparison can be made of the net cash flow between secondaries funds and direct private equity funds by examining the annual called-up and distributed capital.

Such comparisons show that capital is called at a faster rate and distributions begin earlier for secondaries funds when compared to direct private equity funds, meaning that investors are provided with returns more quickly and earlier in the fund’s lifecycle. This is a defining characteristic of a secondaries fund, as the underlying private equity funds are normally at a range of vintages and therefore maturity.

From this analysis we can also see that secondaries funds appear to break even earlier in their fund lives than direct private equity funds, with net cash flow becoming positive in the seventh investment year as opposed to the eighth.

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