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Who Buys on the Private Equity Secondary Market? - March 2014

by Francesca Braganza

  • 03 Mar 2014
  • PE

The secondary market is an increasingly important aspect of private equity investors’ investment strategies, providing a way in which to access vehicles that LPs might not have been able to access previously. Currently, the market consists of several secondaries players with a significant amount of capital available for investment, as well as numerous non-traditional buyers all showing interest in utilizing the secondaries market to mitigate the J-curve associated with private equity returns, diversify their investment portfolios, and take advantage of the good value fund interests available for sale. 

Preqin’s Secondary Market  Monitor online service profiles 283 non-traditional buyers that are currently taking an opportunistic approach towards purchasing private equity fund interests on the secondary market; this number is a testament to the present market demand. Public and private sector pension funds make up 31% of this group of potential buyers, with a number of the largest global pension funds using their industry experience to incorporate secondary market transactions into their investment strategies. Other types of LPs that have shown interest in taking an opportunistic approach towards buying on the market include insurance companies (13%), asset managers (10%), family offices (10%), and endowment plans (8%). 

In total, these 518 traditional and non-traditional secondary market participants have aggregate assets under management of over $16tn, and are headquartered around the world. Forty-seven percent are based in North America, and 39% have headquarters in European countries, such as Switzerland, the UK and France. An additional 10% are based in various countries across Asia, including Japan, India and Singapore, and the remaining 5% are headquartered in economic regions outside of North America, Europe and Asia, such as South Africa, the UAE and South America. 

Coller Capital is the largest secondaries player by estimated dry powder, with $4.6bn available to deploy into the market through its dedicated secondaries vehicles. The secondary fund of funds manager’s latest vehicle, Coller International Partners VI, purchases entire portfolios of fund interests as well as sole fund stakes, mainly focusing on buyout, venture capital, growth and mezzanine vehicles on a global scale. 

The largest non-traditional buyer by private equity assets under management which currently considers purchasing private equity fund interests on the secondary market is California Public Employees’ Retirement System (CalPERS), which has $397mn of its $283bn private equity assets under management currently allocated to secondary market opportunities. The firm has a dedicated secondaries team that has a particular interest in purchasing stakes in post-2007 vintage vehicles. CalPERS has the capacity to invest up to $600mn annually into the secondary market, although this will depend on market conditions.

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