Preqin’s Secondary Market Monitor online service currently tracks 109 investors that are highly likely to purchase fund stakes on the secondary market over the next 12 months, of which 32 (29%) have a preference for purchasing stakes in tail-end funds. Tail-end funds are funds which are approaching or have exceeded the end of their anticipated lifetime. These funds can have few remaining assets and take up negligible space within an investor’s private equity portfolio; they can therefore represent a source of continuing administrative burden. Secondary market buyers engaging in tail-end fund transactions therefore provide a desirable liquidity solution.
Of these 32 highly likely secondary market buyers with a preference for tail-end funds, the majority are based in Europe (47%), followed by North America (34%). The remaining 19% of investors are based in countries outside these two regions. The largest of these investors is US-based HarbourVest Partners. The $37bn private equity fund of funds manager held a final close on its latest dedicated secondaries vehicle – Dover Street VIII – in July 2013, and also includes an allocation to secondary investments in its primary fund of funds vehicle. The firm will actively seek to acquire global stakes in venture capital, growth and buyout vehicles over 2015, and also invests in stapled secondary transactions.
The second largest investor with a preference for tail-end funds is UK-based private equity fund of funds manager Pantheon. The firm, which has $28bn in private equity assets under management, is currently fundraising for its latest dedicated secondaries vehicle, Pantheon Global Secondary Fund V. The vehicle held a second close on $1.1bn in January 2015 and is targeting $2.5bn in total. It will seek to acquire stakes in global buyout, venture capital and special situations funds.
Altius Associates is the third largest investor with a preference for tail-end funds. The $26bn private equity fund of funds manager will look to complete between one and 10 secondary transactions this year, and generally has a preference for buyout and venture capital vehicles globally. The firm would also participate in a stapled secondary transaction.