The volume traded on the secondaries market is expected to fall this year as public market unpredictability and macroeconomic conditions lead to widening bid/ask spreads for stakes.
Respondents to Cebile Capital‘s Secondaries Outlook Report said they expect deal volume for secondaries to fall to a range between $37 billion and $40 billion due to volatility in the equity markets, the collapse in energy prices and the slowdown in the emerging markets.
“In a falling market, buyers are more careful [about paying] the top-most price they possibly can,” Sunaina Sinha, managing partner at Cebile, told Secondaries Investor. “They’re going to go towards conservative scenarios and will want a cushion because they don’t want to pay high pricing, par or premiums in a falling market.”
With sellers also reluctant to bring portfolios to market because they know pricing will be lower, sellers’ and buyers’ price expectations will not match up as the spread is too large, Sinha said.
Deal volume for secondaries, which has generally risen since 2009, plateaued on about $45 billion last year, roughly equivalent to 2014, the report noted.
Average pricing in 2015 was 89 percent of net asset value (NAV), comparing favourably with 2014 levels, according to the report, which examined fund and direct stakes across private equity, real estate, infrastructure, agri and timberland and other strategies.
The survey also found that the most typical sellers in 2015 were funds of funds, followed by family offices and then public pensions.