Private Equity Fund of Funds Managers’ Secondary Market Activity

by Tom Carr

  • 17 Mar 2011
  • PE

Private equity fund of funds managers are one of the most active investor types in the secondary market, looking to take advantage of the benefits associated with both buying and selling private equity fund interests. Private equity fund of fund managers, as well as being active investors, tend to be opportunistic players in the secondary market. Preqin’s Secondary Market Monitor currently lists 241 investors that are currently considering selling fund interests on the secondary market, with 12% of this figure being made up of private equity fund of funds managers. Funds of funds are also extremely active in the buying of portfolio interests on the secondary market, making up over 27% of the 592 investors listed as considering buying on the secondary market.

Whilst the proportion of possible sellers on the secondary market that are fund of funds managers is significant, it is interesting to note that of all funds of funds that have expressed a preference regarding whether they will sell on the secondary market or not, just 17% are considering selling. In comparison, the proportion of fund of funds managers that have stated a preference regarding buying fund interests on the secondary market is higher, with over 80% prepared to buy and only 20% unwilling to do so.

The opportunistic manner of fund of fund managers’ secondary market activity can be illustrated by breaking down the likelihood of such firms selling fund interests. Of those funds of funds that expressed a preference for the selling of fund interests, only 11% consider themselves to be highly likely to do so, with the remainder describing their likelihood of selling as possible or opportunistic. Firms that might look to sell fund interests on the secondary market over the next 12 months include Macquarie Funds Group, which is looking to exit North American buyout funds, and Kensington Capital Partners. It is interesting to note that both of these private equity fund of funds managers, while considering selling fund interests, are also highly likely to buy on the secondary market in the next 12 months.

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