Preqin defines early secondaries as transactions that involve the acquisition of interests in vehicles that are less than 30% funded. These deals offer varying opportunities and consequently different risk profiles to traditional secondary purchases. Typically, secondary buyers acquire stakes in funds that have invested significant proportions of their capital, as it means the purchaser has a robust idea of the vehicle’s underlying investments and their performance to date. In contrast, an investor making an early secondary investment places greater confidence in the GP, who must still decide where the majority of the fund’s capital will be deployed.
Preqin’s Secondary Market Monitor database currently tracks 771 investors that are open to using the secondary market to acquire stakes in private equity, private real estate or unlisted infrastructure funds. Of these investors, 144 (19%) consider early secondaries. Half of those that consider early secondaries are private equity fund of funds mangers, a proportion nearly matched by secondary fund of funds managers, which make up 8% of all potential secondaries buyers. Over 90% of early secondaries investors have their headquarters in either North America (46%) or Europe (45%), with the remainder based in a range of countries, including the United Arab Emirates and Japan.
The largest of the potential early secondaries buyers according to assets under management (AUM) is Abu Dhabi Investment Authority. The sovereign wealth fund has $773bn in AUM and is an opportunistic buyer of private equity fund stakes on the secondary market. The fund has a preference for mid-market buyout funds when acquiring secondary interests.
Asset manager UniCredit Markets & Investment Banking is the second largest investor with an interest in early secondaries, with AUM of $449bn. The firm seeks to purchase stakes only in buyout funds, and prefers to gain exposure to vehicles managed by GPs with which it has a previous relationship.