Preqin’s Secondary Market Monitor shows that 17% of investors are considering selling private equity or private real estate fund stakes on the secondary market over the next 24 months, with 16% of possible sellers looking to do so immediately and a further 65% considering doing so within the next 12 months. The decrease in the discounts to net asset value (NAV) on secondary interests has brought potential sellers back to the market as they are now able to receive better prices for their private equity fund stakes. The alignment of buyer and seller expectations of secondary market prices, alongside investors’ wishes to rebalance portfolios and exit poor performing funds or non-core assets, is likely to contribute to continued healthy secondary market deal flow for 2011.
We have already seen several secondary market transactions taking place in early 2011, which supports predictions that there will be substantial activity on the secondary market over the course of the year. Lexington Partners agreed to acquire a GBP 470 million private equity portfolio from subsidiaries of Lloyds Banking Group. The portfolio consists of 33 European mid-market private equity funds and is reported to include stakes in funds managed by Doughty Hanson & Co and Bridgepoint Capital. We have also seen Partners Group purchase a portfolio of Indian private real estate fund stakes. The portfolio, which is managed by a fund manager with over 15 years of local experience, was purchased on behalf of Partners Group’s clients from a seller requiring liquidity.