Competition for primary assets is a boon for secondaries volume

Growing competition for underlying assets are the biggest challenge for primary GPs but will create future opportunities for secondaries, according to Investec's GP Trends 2015 report.

Growing competition for assets and rising valuations were the biggest concerns for general partners on the primary side, according to a recent survey, but these concerns will also translate into greater deal flow for secondaries firm.

Almost three-quarters, or 72 percent, of respondents felt competition and pricing were the biggest challenges facing private equity over the next 12 months, according to Investec’s GP Trends 2015 report, which was obtained exclusively by Secondaries Investor. It surveyed 81 senior private equity professionals in the UK and Europe.

For the secondaries market, greater competition on the primary side means deal flow will only become stronger, according to a director at a London-based secondaries firm.

“More competition on the primary side suggests that GPs have been able to raise new funds, which suggests that the volume of private equity assets remains high,” the director said. “This means people are able to do deals, which means there will be good secondary volume in the future.”

When asked how concerned they are about high valuations and competition for assets, about 39 percent of respondents to the survey said is a major issue, while more than 53 percent said it is only one of several issues they have to face.

Current high pricing on the primary side will take several years to trickle down into secondaries, according to the source.

“At some point, three or four years down the line when these funds will be more in the sweet spot, it will be a question of what the GPs are marking the assets at,” he said.

Source: Investec