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Private Equity: Could ‘Secondary’ be slowly becoming the new ‘Primary’?

by Dami Sogunro

  • 23 Jul 2009
  • PE

Following the state of the global economy in recent months, high discounts to net asset value on illiquid assets such as private equity are present in the secondary market. As a result of this, more attention is being placed on the market by institutional investors. A number of the ‘larger’ institutional investors are either setting aside funds for such investments or are considering entering the secondaries market.

Korea Investment Corporation (KIC) has recently awarded Partners Group a private equity secondaries mandate. KIC is pushing even further into the private equity asset class by awarding this mandate and is drawn by the attractive potential of the returns it could get from purchasing interests on the secondary market. Also, the New Jersey State Investment Council has recently held discussions about commencing a dedicated private equity secondaries investment programme, with a final decision expected to be made soon. Unlike the smaller institutional investors, the larger institutional investors, such as sovereign wealth funds and public pension funds, will certainly be able to set aside allocations specifically for the private equity secondary market, and appear to be the ones who are better placed to reap the possible benefits of being active in the private equity secondary market.

In the 2009 Preqin Private Equity Secondaries Review, Preqin surveyed a number of secondary market intermediaries, with the majority being of the opinion that for 2009, the market will undoubtedly be one which is more favourable for buyers. Significant growth has been seen in the number of potential buyers on the secondary market, with one intermediary saying that - “investors in the market have more or less doubled in the last two years”.

As of the time of publication of the 2009 Preqin Private Equity Secondaries Review, secondary fund of funds firms were still the most active secondary buyers, however, as of this time, it would be safe to say that despite this, other investors which are less dedicated to secondaries will certainly be responsible for far more activity in the market than they were two years ago. With many institutions utilising the secondaries market for liquidity purposes, as a portfolio management tool, or simply to take up arbitrage opportunities, there is every chance that their level of activity is set to grow.

Preqin’s Secondary Market Monitor offers a unique and completely complimentary service for investors seeking to gain an indication on the value of their private equity holdings. In addition, the service offers investors the opportunity to receive bids from real secondaries players, including a guaranteed offer from leading specialist NYPPEX. At all times the seller remains anonymous – only when a bid has been accepted will the identities be revealed.
If you would like to receive more information on receiving free price indications, or would like more information on becoming a buyer and gaining access to this unique source of secondaries dealflow, please visit www.preqin.com/smm and contact us at clientservices@preqin.com to request a walkthrough.

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