The LPs making the biggest known commitments to secondaries funds

GPs are not the only ones flocking to the secondaries market, as investors increasingly look to back the bourgeoning sub-asset class, Secondaries Investor data shows.

Cathay Life Insurance topped the list of the largest known investors in secondaries, committing $2.42 billion to funds with a vintage year of between 2016 and 2022.

The Taiwanese insurer has backed a number of large-name funds out in the market, including Blackstone’s Strategic Partners Fund IX and Lexington Partners‘ Capital Partners X, both of which received a $600 million commitment from the institution.

Other secondaries names Cathay Life has committed to in recent years include Ardian, StepStone Group, LGT Capital Partners, Landmark Partners and Pantheon, all of which feature in the top 10 fund managers in Secondaries Investor‘s 2022 SI 50 ranking.

Following Cathay Life on the list of biggest PE investors in secondaries funds is Minnesota State Board of Investment, which has committed $1.65 billion to secondaries fund managers over the past six years, and Employees’ Retirement System of the State of Hawaii, which has put $1.22 billion in the coffers of secondaries buyers. Both Fubon Life Insurance and New York State Common Retirement Fund also have committed more than $1 billion to secondaries funds.

Whole new ballgame

In 2016, investors saw secondaries as a “highly diversified, low-risk, low-return type of strategy”, said Sunaina Sinha Haldea, global head of private capital advisory at Raymond James. Given the growth of the GP-led secondaries landscape, that is no longer the case today.

Most LPs have now decided they want secondaries to be part of their portfolios as they seek out further diversification in their private markets playbooks, Sinha Haldea said. Single-asset secondaries strategies, for example, could match the returns seen by buyout funds with higher risk attached compared with LP-led strategies.

“There’s so much stratification now and so much choice for institutional LPs,” Sinha Haldea added. “That’s the big shift. That long hard education process? The heavy lift of that is over. Now, the education is, ‘Here’s how my world view of secondaries is different to my [buyer] peers’.”

Secondaries fundraising dipped 30 percent year-over-year in the first half of 2022, with $31.2 billion raised, according to data from Secondaries Investor. Private equity commitments have also faced a tumble as LPs wrestle with the impacts of the denominator effect on their portfolios while managers rush back to market raising new vehicles.

The drop comes off the back of a rapid period of secondaries fundraising over the past two and a half years, topped by a record $98.8 billion in 2020, Secondaries Investor data shows.