Preqin’s Secondary Market Monitor online service currently tracks 265 investors that have shown an interest in pursuing opportunities to sell their private equity fund interests on the secondary market. These LPs identify a number of advantages of tapping the secondary market, such as using it as a tool in which to re-balance investment portfolios. A number of sellers have turned to the secondary market as new regulations are implemented which require certain investors to limit their exposure to private equity, such as the Volker Rule for US banks and Basel III for global insurance companies.
Public and private sector pension funds represent over a fifth (21%) of these potential secondary market sellers, making them the most populous LP type. The second largest group of investors in this sample is private equity fund of funds managers, which make up 13% of the 265. A number of banks, foundations and asset managers have shown an interest in selling their existing fund commitments, with each of these investor types representing 8% of the total group. Other LPs that would consider participating on the secondary market as a seller include insurance companies (7%), investment companies (6%), endowment plans (5%) and private equity firms (4%).
With regards to the geographic location of potential secondary market sellers, 44% have headquarters in European countries, most notably Switzerland, the UK and Germany. North America-based investors also represent a large proportion of this group, with 43% of firms based in the US and Canada. Firms headquartered in Asia make up 9% of this group, with the majority of businesses based in Japan, Australia and China. LPs in regions outside of the US, Europe and Asia represent 3% of the 265, in countries including the UAE, Kenya and Saudi Arabia.
Recently, UK-based Royal Mail Pension Plan started considering a sale of its $760mn private equity portfolio. The pension fund will continue to pursue opportunities to invest in funds of funds, but intends to exit its commitments to a range of other fund types, including buyout and growth vehicles and may well use the secondary market to do so.