Greenhill‘s Global Secondary Market Trends & Outlook report, published on Friday, paints a mixed picture.
Although deal volume hit another record high last year, growth has slowed and GP-led processes did not kick off in the way many anticipated. Here are some of the most interesting findings from the report.
- GP-leds declined as a proportion of total deal volume
Total secondaries market transaction volume hit $88 billion, up from $74 billion the year before, making for another record year. GP-led deals as a proportion of volume declined to 30 percent from 32 percent the year before, the first year of decline since 2014-15.
2. Single-asset deals climb, spinouts fall
Single-asset deals grew from 4 percent of GP-led volume in 2018 to 26 percent last year. Greenhill registered six such deals with a transaction volume of at least $500 million. At the same time, the proportion of GP-led deals that resulted in the creation of a management company (ie a spinout) declined even more dramatically, from 28 percent to less than 1 percent.
3. Capital overhang drops to 2013 level
The amount of available dry powder versus deal activity has declined to levels not seen since 2013. Near-term available capital stood at $155 billion at the end of last year, a decline of 19 percent year-on-year. Combined with the increase in deal volume, this means an overhang multiple of 1.8x compared with 2.6x 12 months ago.
4. Pricing softens across asset classes
The average high bid across all strategies last year was 88 percent of net asset value, down from 92 percent the prior year. High valuations dovetailed with increased risk aversion from buyers, who prioritised “newer vintages, well-known managers and fundamentally strong asset exposure” in 2019, Greenhill noted. The average price of buyout, real estate and venture capital stakes declined by 4, 6 and 6 percentage points, respectively.
5. Newer vintages dominate the market
Buyer appetite for pre-crisis funds declined in 2019, with funds older than 2009 accounting for 28 percent of total volume. There was a clear split in pricing: funds of 2013-2015 vintage priced at an average of 89 percent of NAV and post-2015 vintage funds 93 percent of NAV, while all older vintages priced below the 88 percent average.
“Fewer buyers were willing to include older vintage funds within portfolio bids, and those that were required a substantial discount,” Greenhill noted.