Full-year secondaries fundraising nears $100bn mark

Fundraising for secondaries funds nearly tripled between 2019 and 2020, according to preliminary data from Secondaries Investor.

Overall secondaries fundraising, including in real estate, infrastructure and credit, hit a record $95.6 billion in 2020, compared with $33.1 billion the year before, the data show.

Fifty-one secondaries funds held final close in the calendar year, compared with 46 in 2020. This equates to an average fund size of $1.8 billion, versus $720 million the year before.

Four secondaries funds featured among the 10 largest private equity funds raised in 2020: Ardian‘s ASF VIII, which collected $19 billion including co-investment capital; Lexington Capital Partners IX with $14 billion; Goldman Sachs Vintage Fund VIII with $10.3 billion; and AlpInvest Secondaries Program VII with $10.2 billion including co-investment capital.

Overall, private equity funds gathered $535.2 billion in 2020, with PE secondaries funds accounting for 15 percent of that total, an increase of 9 percentage points from the prior year, according to preliminary data from sister publication Private Equity International.

“Fifteen years ago, having secondaries as a first-time investment wasn’t as viable an option for investors; there wasn’t such a mature market as there is today,” said Anna Morrison, senior director for private markets at advisory firm bfinance. “Now we are having discussions with clients who are getting into PE for the first time who are looking to get rid of the J-curve and change the cashflow profile.”

Several factors are driving interest in the strategy, such as investors’ needs to manage J-curves more efficiently, desire for quicker pay-outs and ultimately, to access better yields even in the early years of a programme; according to Garvan McCarthy, head of alternatives EMEA and Asia-Pacific at Mercer.

He added that the drive for investors into the secondaries market has been for “more efficient portfolio management rather than a replacement or a lack of credible and quality options in the primary market”.

The secondaries market is expected to continue to grow into 2021, particularly in the GP-led sector, with increasing LP appetite for the strategy, bfinance’s Morrison said. She added that from a portfolio construction perspective, the way LPs invest in private equity is shifting.

“Maybe you start with a secondaries commitment as you build out a more tailored programme, and funds come in a bit later, which is something that would not have happened 10 or 15 years ago,” she said.

Capital raising across all private equity strategies in 2020 was the third-highest in the past six years, even as the pandemic raged, forcing on-and-off lockdowns and remote working. The aggregate fundraising volume last year dropped 19 percent from 2019. Compared with 2018, fundraising jumped 11 percent from the $483.6 billion raised that year. This could change as the 2020 data is preliminary.

CVC Capital Partners amassed €22 billion for its eighth flagship fund – the largest fund to close last year and since the onset of the pandemic, according to PEI. Silver Lake held a $20 billion final close on its sixth flagship fund, making it the largest tech-focused private equity fund raised. The 10 largest PE fund closes made up nearly $137 billion, or about a quarter, of total fundraising in 2020.

Although 2020 represented the third-highest private equity fundraising total since 2015, the number of funds closed dipped to its lowest level over that period at 906, according to provisional full-year figures. This suggests that re-ups and the flight to familiarity were favoured in a year in which LPs and GPs have had to adapt to completing due diligence virtually.

Geographic allocations of capital remained consistent in 2020. Funds raised by North America-focused managers made up 38 percent ($202.9 billion) of fundraising.

Almost 12 percent of capital raised had a sole focus on the European market, while Asia-Pacific funds made up 10 percent, also roughly similar to the previous year.

Look out for our interactive fundraising download in the coming week.