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Institutional Investor Appetite for the Secondary Market – October 2012

by Jessica Duong

  • 04 Oct 2012
  • PE

Preqin’s Secondary Market Monitor tracks institutional investor appetite for secondary market sales and purchases. Through continuous contact with hundreds of institutional investors, the Preqin’s research team have been able to confirm with them their likelihood of buying and selling private equity fund stakes on the secondary market.

The data reveals that over the next 24 months, only 25% of institutional investors indicated that they were likely to purchase fund interests on the secondary market. Of those, 61%  saw adding secondary market stakes to their private equity portfolio a possibility, whilst 30% viewed secondary market purchases purely as an opportunistic investment strategy and 9% expressed that they were “highly likely” to buy a fund interest on the secondary market over the next 24 months.

Figures for the selling side of the secondary market reveal a similar picture in terms of the uneven split of those institutional investors that are likely or unlikely to exit commitments through a secondary market sale. A small proportion (16%) of the data set of institutional investors and fund managers expressed that they were likely to sell stakes in private equity vehicles over the next 24 months. Of these, 74% considered sales possible, 17% were taking an opportunistic approach only, and 8% indicated it was highly likely they would be selling fund interests within the following two years.
An example of a likely seller is the Wilder Foundation, the MN-based non-profit health and human services organisation; their need to exit private equity fund commitment stems both from a desire to generate liquidity and a negative attitude towards alternative assets.

This month’s upcoming issue of Private Equity Spotlight will offer further insight into the secondary market, including a more detailed overview of fundraising efforts in 2012 YTD, secondary fund managers and a breakdown of the types of LPs that will be buying or selling.

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