Buying stakes trumps fund commitments for large investors

Acquiring fund stakes directly is the most popular way for large investors to access the secondaries market, a survey has found.

More than half of investors seeking to invest $500 million or more said they actively purchase positions in funds, according to placement agent Probitas Partners’ Private Equity Institutional Investor Trends for 2017 Survey. Less than half of the same investors – 48 percent – said they actively invest in secondaries funds.

Large investors want access to general partners for reasons including being shown deal opportunities, and they use the secondaries market to do so directly, Kelly De Ponte, managing director at Probitas, told Secondaries Investor.

“They are often not looking for secondary exposure per se, but are more often looking to build a more strategic relationship with a specific GP, often revolving around co-investment,” De Ponte said.

Probitas conducted the research in September and October and gathered answers from 86 respondents including pension funds, funds of funds, insurance companies, endowments and foundations.

Smaller investors still prefer to access the secondaries market by committing funds, with 43 percent saying they actively do so, compared with 37 percent who purchase stakes, the survey found.

Overall, committing to funds remained the most popular method for investors seeking exposure to the strategy, with 44 percent of all respondents saying they invest in such funds.

As for disposing of stakes, 40 percent of respondents said they have sold or were considering selling funds for portfolio management reasons, the third most popular method for accessing the strategy.

When it comes to fund restructurings, a fifth of respondents – mostly funds of funds – said they were active in this segment of the market.

Regional differences appear to play a big role in investors’ views on secondaries: dedicated funds to the strategy were most popular among North American and European investors with 21 percent of respondents in both respective regions saying they plan to focus most of their attention on secondaries funds next year.

Just 8 percent of Asian, Middle Eastern and Latin American respondents said they plan to focus most of their attention on such funds.

Source: Probitas