The secondary sellers’ market offers private equity investors a way in which to reduce their exposure to the asset class, increase liquidity in an illiquid portfolio and reduce the number of GP relationships that they have. It is also utilized by investors seeking to conform to strict regulatory guidelines, such as the Basel III directive; designed to reduce the insolvency risk of European banks.
Preqin’s Secondary Market Monitor online service currently tracks 392 potential sellers of private equity fund stakes, 40% of which are based in Europe. UK & Ireland-based investors make up the highest proportion (33%) of these Europe-based sellers, having aggregate assets under management (AUM) of approximately $3tn. As shown in the chart above, public and private sector pension funds constitute the highest proportion (28%) of this group, with the next most prominent investor type being family offices (14%). Other firm types include private equity fund of funds managers (8%), listed fund of funds managers (also 8%), asset managers and wealth managers (both 6%).
Royal Bank of Scotland is the largest UK-based potential seller tracked by Preqin, with £1.5tn in AUM. It ceased investment in private equity funds in March 2011, and has since been exiting all existing commitments via the secondary market in order to meet the strict requirements of Basel III. The bank’s private equity portfolio is known to have previously consisted of US- and Europe-focused buyout, growth, mezzanine, venture and balanced vehicles.
Of the pension funds that could consider selling-off existing fund commitments on the secondary market, BT Pension Scheme is the largest in terms of AUM. The £40.8bn public pension fund has previously utilized the secondary sellers’ market, and may consider doing so again in the future. BT Pension Scheme has a small allocation to private equity and its portfolio is primarily made-up of Europe-focused buyout funds.