When it comes to fundraising data, looks can be deceiving

Lumpiness, rather than sentiment, is why secondaries fundraising is down.

Examining fundraising figures can sometimes feel like a fool’s errand. Take the first half of 2018, in which secondaries funds hitting final close accrued $12.73 billion. This was the weakest first-half performance in five years, equivalent to half of what was raised in the same period of 2017.

Sister publication Private Equity International‘s third-quarter fundraising figures, published this week, tell a similar, if less dramatic, story. Secondaries funds raised $10.75 billion over the period, down from $10.98 billion in Q3 2017. Though both years tower over the previous eight, with only $8.45 billion raised in Q3 2011 coming close, it does raise the question: is this drop-off indicative of a slowing market?

Secondaries advisor and placement agent Rede Partners, in its H2 liquidity index, found that investor sentiment towards secondaries has dampened. On a scale where no change in sentiment is equivalent to 50, more positive is above and less positive below, the first-half figure was 44 — the figure from the same period of 2017, 52.

If these data suggest diminishing appetite for secondaries, they should be treated with caution. In early October, Secondaries Investor revealed that Landmark Partners had raised $7 billion for secondaries, including capital from co-investment vehicles. Though it is not clear what proportion is from the main vehicle and what from side vehicles, this haul is nearly double what the firm brought in for Fund XV, which closed on $3.25 billion in 2013.

A couple of weeks before, Northleaf Capital Partners announced it had hit final close on its sophomore secondaries fund. It raised $800 million for its main vehicle and an additional $500 million through separately managed accounts, having set out with a target of $600 million. This figure of $1.3 billion compares with $255 million raised for its debut fund, which closed in November 2013. When Secondaries Investor asked managing director Michael Flood about the huge increase in fund size, he simply said that the deals were there and his team big enough to handle them.

“[In recent years] we’ve seen supply grow as the market innovates with increased GP-led transactions, fund level financings and direct secondaries, and in order to address this growing opportunity we have built the secondary team’s capacity and capabilities by expanding our London office and opening an office in New York, ahead of raising capital,” he said.

Most of the largest names, such as Ardian, Lexington, Coller Capital and Strategic Partners, are in market. And from what Secondaries Investor hears, they are doing rather well. In July, we revealed that Lexington Partners IX had amassed $9 billion-$10 billion of its $12 billion target, having only registered in February. If just two of these funds hit final close in the same quarter of 2019, we are immediately on for a record breaker. In a lumpy market like this, the figures don’t tell the whole story.

Write to the author: rod.j@peimedia.com