The Market Share of Direct Secondaries Funds – May 2014

by Chloe Wong

  • 23 May 2014
  • PE

2014 looks set to be an even stronger year for the secondaries market than years previous, for it has seen growth in both the number of direct secondaries funds and the capital committed to them. This, coupled with the increased media coverage of the direct and indirect secondaries industry, demonstrates the growing attention that this niche area of the private equity market is gaining. The resurgence of the asset class is illustrated by the statistics available on Preqin’s Funds in Market online service, with the $1.0bn in aggregate investor capital secured by direct secondaries vehicles reaching a final close in 2012. This increased to $1.7bn in 2013, and already in 2014 to date it is at $1.8bn, exceeding last annum’s total with more than half a year left to go. 

Looking at the funds currently in market, there are 33 direct and indirect secondaries funds that are aiming to raise an aggregate $24bn in capital commitments. Historically, the number of direct secondaries funds has been significantly lower than the number of their indirect counterparts.  In fact, between 2005 and 2013, there have only been 90 direct secondaries funds out of the total 242 secondaries funds raised. The gulf between the strategies widens further when considering total capital accumulated, with direct secondaries funds amassing less than 10% of the $130bn that has been garnered by both direct and indirect funds since 2005. 

So far in 2014, out of the five direct secondaries funds that have successfully completed fundraising, SwanCap Opportunities Fund has accumulated the most capital. The German-managed fund raised $1.2bn, making it the largest direct secondaries vehicle that has  closed historically. With AlpInvest acting as a lead backer, the fund plans to use the capital to buy part of Unicredit’s private equity portfolio. 

A geographic breakdown of Preqin’s data shows that over time, there has been roughly the same number of fund managers from Europe and North America raising direct secondaries funds. Between 2005 and 2013, the amount of capital raised by Europe- and North America-based fund managers was largely equal and contributed towards 42% and 46% respectively of the global aggregate capital raised by direct secondaries funds during this period. However, before 2008 it appears European private equity firms favoured the direct secondaries strategy more, with 18 funds raised by European managers out of all 37 funds closed, representing 48% of the industry. 

However, the largest direct secondaries fund currently in market is in fact a vehicle managed by an Asia-based fund manager, Hong Kong-based NewQuest Capital Partners. The firm’s sophomore fund, which is targeting $300mn, held a first close in December 2013 on $215mn and has a hard cap of $330mn. 

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