Demand for newer funds grows as buyers target unfunded

More than four out of five of funds to transact in the first half of this year were 2013-vintage or newer, up from half at the end of 2019.

The average fund sold on the secondaries market during the first half of this year was only recently out of its investment period.

According to data from Greenhill, 81 percent of funds to change hands between January and end-June were 2013-vintage or newer, compared with 51 percent at the end of last year. Across all vintages, the aggregate percentage called was 70 percent.

Intermediary Setter Capital came to a similar conclusion, putting the average age of fund sold on the market in the first half at 5.52 years.

“Those managers [with younger funds] will have opportunities to deploy their capital while considering the current market and risk factors, as opposed to funds that had deployed their capital prior to the pandemic and are now reacting to the new environment,” said Setter vice-president Prab Rattan.

The value of an unfunded stake is determined by numerous factors including the expected return of a fund, how aggressively the portfolio is marked and the expected commitment pace, Richard Olson, managing director in the valuations and opinion team at investment bank Lincoln International, told Secondaries Investor.

Due to covid-19, there is an increased probability that limited partners will have to use unfunded commitments to support existing portfolio companies, which is something for secondaries buyers to consider, he added.

Overall transaction volume was estimated at around $18 billion in the first half, a decline of 57 percent on the same period of last year, according to Greenhill.