Preqin’s Investor Intelligence currently tracks 5,273 investors in the private equity asset class. The most sought after fund types in the asset class are venture capital funds (59%) and buyout funds (52%). However, secondaries funds are a growing and attractive investment opportunity for investors who want to diversify their investment portfolios and want to see positive cash flows and mitigating the effect of the J-curve. One investor which has recently taken advantage of these features that secondaries vehicles offer is Minnesota State Board of Investment (MSBI), which made commitments to Lexington Capital Partners VIII and Strategic Partners Fund VI.
Twenty-three percent of all investors in the private equity universe have either previously invested in or have stated a preference for secondaries vehicles. The most prevalent type of investor with an appetite for secondaries funds is pension funds. Twenty-one percent of these LPs with an interest in secondaries are public pension funds, with private pension funds accounting for 19% of investors. Foundations represent 16% of these LPs, endowment plans (10%), followed by insurance companies (9%).
Secondaries vehicles are very popular among North American investors, which account for 62% of all LPs that have previously invested or have a preference for such funds. Investors based in Europe make up 27% of the sample of LPs, and the remaining 11% which encompasses investors from across the globe which includes Asia, Africa, South America and various other regions.
An example of a North America-based public pension fund that is currently actively investing in secondaries funds is Firefighters' Retirement System of Louisiana. It plans to commit $25mn to a secondaries fund with a 2014 vintage. Another investor which has shown an interest in secondaries funds is Pension Protection Fund, a private sector pension fund based in the UK. It is looking to target secondaries funds that provide the pension fund with global exposure.
In conclusion, secondaries vehicles provide an attractive avenue for diversification that many investors need, in addition to serving as a powerful tool to reduce the J-curve effect, especially if they are acquired at a discount to net asset value.