Greenhill and Setter: six of the best on secondaries in 2017

Record volumes, high prices and the growing popularity of VC funds are among the trends outlined in recent reports from the secondaries advisors.

Secondaries advisors Greenhill Cogent and Setter Capital have both compiled data on the state of the secondaries market in 2017. Here are some key highlights taken from excerpts of Greenhill’s secondary market report, and Setter’s full-year volume report.

Secondaries transaction volumes hit $58 billion, according to Greenhill

Evercore’s secondaries deal volume estimate of $54 billion was high, but it may turn out to be at the conservative end of the scale. In a report seen by Secondaries Investor, Greenhill Cogent puts the figure at $58 billion, a 57 percent increase on last year’s $37 billion. It cites $100 billion of dry powder as the driving force. The secondaries advisory firm expects 2018 to be another record year.

VC funds saw big rise in popularity

According to Setter Capital’s 2017 volume report, all classes of private equity fund increased in popularity. Large buyout purchases totalled $27.51 billion, up 36.4 percent year-on-year, while fund of funds volumes saw a moderate increase of 9 percent year-on-year to $1.23 billion. Demand for venture capital funds stood out, the $3.08 billion of deals done last year representing a year-on-year increase of 60.5 percent, Setter noted.

GP-led transaction volumes jump, with further peaks likely

Greenhill posits that 2017 saw $14 billion-worth of GP-led transactions, up around 50 percent in year-on-year terms. More than 40 of these transactions were valued at more than $100 million, it added. Recapitalisations and restructurings accounted for 56 percent of the total, tender offers 22 percent, with other types of process account for 22 percent. The advisor expects GP-led transaction volumes to exceed $20 billion in 2018.

Repeat sellers accounted for 75 percent of the market

According to Greenhill Cogent, repeat sellers made up three quarters of secondaries activity in 2017. Their reasons for selling became more opportunistic this year, the firm said, as regulation requiring financial institutions to offload private assets dissipated. High pricing, which allowed LPs to cash in through the sale of non-core assets, and changes to LPs investment teams were major drivers of secondaries sales in 2017, Greenhill notes.

Pricing hits another high

Pricing hit record levels in 2017 across all private equity fund types, according to Greenhill. The average buyout fund sold for 99 percent of net asset value, up on 96 percent in the previous record year of 2014, while real estate and venture funds respectively averaged 93 percent and 83 percent of NAV, up on their 2014 records of 92 percent and 83 percent. Strong competition, rising public markets and a higher quality of available asset drove the increase, Greenhill noted.

Buyers to broaden secondaries market scope in 2018

According to Setter Capital’s survey, 22 percent of respondents broadened their secondaries scope in 2017 by buying other alternative assets such as infrastructure, real estate and direct secondaries funds. This is pretty much in line with the figure of 21.69 percent recorded in last year’s survey. Looking ahead to 2018, 34 percent of respondents expect to broaden their scope, indicative perhaps of the market’s growing maturity.