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The $64bn question

Landmark estimates $64bn of dry powder for secondaries – not that much in the scheme of things, but a great deal more might not be healthy either.

Landmark estimates $64bn of dry powder for secondaries – not that much in the scheme of things, but a great deal more might not be healthy either. 

The last time we reported secondaries dry powder estimates was mid-year. Private equity broker Cattegatt had pegged $50 billion of unspent money, driven by a competitive buy-side environment.

Four months later, those estimates seem largely unchanged. Landmark Partners recently calculated about $64 billion that will need to be deployed between now and 2016. This may sound like a lot, but frankly it isn’t.

Landmark’s estimate includes approximately $38 billion of existing uncalled, uncommitted dry powder, $15 billion of fresh funds being raised right now or expected to come to market within the next six months and about $11 billion from non-traditional buyers.

Some other interesting observations can be made, too. For example – the bulk of the money, about $36 billion, is sitting in funds larger than $3 billion – clearly the large dedicated buyers have continued to bulk up in recent years.

Also, Landmark breaks down the available capital by vintage year. Unsurprisingly, most of the undrawn commitments are to 2014 funds. But in second place are the 2012-vintage funds, which seem to be investing more slowly than funds raised in 2013.

From the point of view of investors, however, what really puts these numbers in perspective is how they compare to the size of the primary market. With roughly $240 billion raised for primaries so far in 2014 according to PEI data, $64 billion accounts for a mere 26 percent of the market as a whole – a figure that seems eminently investable.

On the other hand, ask any manager in charge of a pile of unspent secondary cash, and they’ll likely tell you about how hard it is to invest the money well at the moment. Prices are high, and risks abound.

So $64 billion might not be an overwhelming amount, but that is just as well. If LPs continue to allocate aggressively and the overhang increases, dry powder in secondaries may yet reach a critical level