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ADIA warns of competition from continuation funds on PE assets

The sovereign wealth fund expects competition for attractive companies to remain intense or even accelerate.

Abu Dhabi Investment Authority, the world’s fourth-largest sovereign wealth fund by assets, has said the rise of continuation funds is creating more competition for assets in the private equity market.

The $649 billion investor’s private equity department expects competition for attractive companies to remain intense or even accelerate, it noted in its 2020 Review, published on Wednesday.

“Globally, the private equity landscape is awash with liquidity as dry powder, or funds available for investment, has reached new records,” ADIA said. Amid a supportive environment for financing with central bank rates expected to remain at or near zero for the foreseeable future, “competition for assets from non-traditional sources, including continuation funds and special purpose acquisition companies, is likely to increase”.

Against this competitive backdrop, ADIA’s private equity department will maintain a disciplined approach and focus on the most compelling opportunities on a global relative value basis, it noted.

Data from Jefferies shows that 60 percent of secondaries dealflow in the first half of this year was in the form of GP-led deals, a 383 percent increase on the same period of last year in volume terms. Continuation fund deals have grown to become the dominant form of GP-led processes, accounting for 85 percent of volumes in the first half.

More than one-third of the top 50 largest firms in affiliate title Private Equity International‘s PEI 300 have closed or explored continuation fund processes on their funds, according to Secondaries Investor calculations.

ADIA’s role in the continuation funds market is unclear. In the LP portfolio market, the sovereign fund last year held off on offloading a portfolio that could be worth more than $2 billion in net asset value. Secondaries Investor had reported that ADIA was exploring the sale of as much as $4 billion-worth of stakes in mainly PE funds and funds of funds as part of the process run by PJT Partners.

The SWF raised its allocation band for private equity from 2-8 percent in 2019 to 5-10 percent last year, according to the report.

Its 20-year and 30-year annualised rates of return were 6 percent and 7.2 percent respectively as of 31 December, versus 4.8 percent and 6.6 percent in 2019.

– Alex Lynn contributed to this report.