Investor Appetite for Secondaries Is Set to Bounce Back

From rebalancing portfolios to focusing on co-investment opportunities, more LPs will be looking to sell good-quality assets as valuations stabilize

Rapid growth in the secondary market for private equity fund holdings stalled temporarily as the COVID-19 pandemic took hold. But our Fund of Funds team believes that as valuations stabilize through the remainder of this year, appetite for secondary liquidity among institutional investors will bounce back.

We expect this to lead to more investors seeking to sell private equity holdings and more attractive pricing for good-quality assets. Ardian is well positioned to provide secondary liquidity to the market, especially institutions seeking to sell large portfolios. We recently closed the biggest secondaries fund raised to date, ASF VIII, a $19bn platform which includes $5bn of co-investment interests. The fund, which is 40% invested, attracted around 275 LPs from 40 countries.

Although we expect some investors to use the secondary market to meet short-term liquidity needs resulting from the crisis, there are now many reasons why institutions choose to sell. These include portfolio rebalancing, crystallizing gains from more mature investments to re-invest in higher-growth opportunities, shifting investment strategies, reducing the number of GP relationships to focus on those that offer co-investment, and using the secondary market to validate net asset valuations.

In the current environment, the secondaries market has a crucial role to play in providing institutional investors with liquidity. It’s a vital tool for pension funds and investors in how they allocate investments in private equity. In 2019, secondary deal volume hit a record $85bn, up 16% year on year, according to a report published in March by advisory firm Campbell Lutyens & Co.

While the pandemic has impacted the value of our existing secondary portfolio, the situation is manageable. We expect a faster economic rebound than after the 2008-2009 crisis, because of the rapid injections of emergency support for companies provided by governments and central banks.

About Ardian
Ardian is a Paris-based private investment house with assets under management or advice of $100bn. The company, which is majority owned by its employees, manages funds on behalf of around 1,000 clients across five areas of investment activity: Fund of Funds, Direct Funds, Infrastructure, Real Estate, and Private Debt.

For more expert insights on the secondary market, read Preqin's H1 2020 Secondary Market Update.