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Cogent: deal volume and pricing fell in 2015

Volatility in global equity and commodity markets helped push average pricing down in the second half of last year, according to the advisory unit's outlook for 2016.

Secondaries deal volume and pricing both dropped last year amid a decrease in the number of deals over $1 billion and tough macroeconomic conditions, according to a report by Greenhill Cogent.

While 2015 was the second most active year in secondaries ever, transaction volume slipped to $40 billion, lower than the record $42 billion for 2014, according to the advisory unit’s Secondary Market Trends and Outlook January 2016 report.

Deal volume and pricing levels are expected to remain the same this year, the report noted.

Traditional limited partnership fund interests accounted for about $32 billion of deal volume, with GP-led transactions, which include direct secondaries, fund restructurings, recapitalisations, spin-outs and tender offers, among others, accounting for the rest.

Pricing for secondaries stakes in the second half of last year fell to an average 88 percent of net asset value (NAV) as volatility in global equity and commodity markets, combined with peak 30 June valuations, drove pricing down from its 92 percent average in the first half of the year.

“Energy prices plummeted … the S&P 500 in August experienced its worst month since 2011; Chinese markets spiralled after Beijing surprisingly announced a devaluation of its currency; and the US Federal Reserve announced the first of several planned gradual increases to its target funds rate,” the report noted, stating it expects the pricing gap between higher and lower quality funds expected will widen further.

Below are the firm’s five predictions for the secondaries market in 2016.

1. Annual secondaries market volume will settle into the current band of $35 billion to $45 billion

2. Aggregate pricing is unlikely to increase, and the pricing gap between higher and lower quality funds will widen further

3. The proportion of tail-end transactions as a percentage of total deal count will continue to grow

4. Buyers’ growing use of leverage and LPs’ continued sales of pre-crisis funds will lead to more transactions sold to a portfolio
buyer

5. GP-led transactions will represent more one-quarter of total transaction volume