It’s that time of year again: advisory firms are publishing their take on secondaries transaction volume. And once again, the numbers diverge, depending on the source.
Cogent Partners was first out of the gates last month with its estimate that $16 billion-worth of secondaries deals took place globally during the first half of 2014. Since then, NYPPEX has come out with an $18.9 billion estimate, while Setter Capital has put the figure at $22 billion.
All three totals include secondaries activity across private equity, real estate, infrastructure and mezzanine funds. But NYPPEX’s and Setter’s figures also include hedge fund deals; if you remove those to get more similar data sets, then NYPPEX’s estimate would be circa $18.4 billion, while Setter’s would come in at $19.8 billion – throwing up a roughly $4 billion discrepancy between the highest and lowest H1 estimates. Many of you will recall an even wider gap between Cogent’s and Setter’s numbers at this point last year (which did incidentally close up by year-end).
The fact that there are different estimates floating around shouldn’t be surprising given the opacity of the market and number of transactions that go unrecorded. But I talked to each firm to get a better understanding of how and why their figures regularly differ from each other.
Cogent managing director Todd Miller said his firm’s estimate was based on in-house research and its own pipeline (the firm expects to advise on at least $10 billion of secondaries transactions this year).
“It’s not a very transparent market, but we only include deals we know have closed in the marketplace.” He added the biggest cause for discrepancy between data sets can be what’s considered a 2013 transaction versus 2014 or a first half versus a second half transaction.
NYPPEX takes a similar approach to Cogent, according to NYPPEX managing member Laurence Allen. “We emphasise our estimates are for ‘closed’ deals.”
Setter’s data, meanwhile, is compiled a bit differently, managing director Peter McGrath explained. The firm first surveys active buyers – this year 81 responded, revealing they’d engaged in $14.3 billion-worth of transactions – and then Setter grosses up the results to compensate for active secondaries players that didn’t participate in its survey, such as three of the six largest secondaries funds. Other known buyers including all sovereign wealth funds weren’t included in the grossed up figure.“We view our data as very conservative because non-traditional players weren’t included,” McGrath said.
Some market participants have taken issue with Setter’s ‘mark-up’ – “Everybody is trying to justify a bigger number because it makes what they do seem more important; even the lowest number is going to be pumped up a bit,” said one cynical secondaries GP – while others have said it may get closer to the ‘real’ activity level.
One US-based lawyer noted that if most advisors base their estimates “on their own transactions, transactions they’ve been pitched on and public transactions, there are still a lot of $50 million to $100 million trades that aren’t included”.
It seems the only thing everyone is agreed on, is that we’re headed for a(nother) record year of secondaries transaction volume.