The secondaries market started the first half of the year as strongly as it finished 2014, with high pricing and transaction volume, according to Greenhill Cogent‘s semi-annual Secondary Market Trends and Outlook, which was released on Wednesday.
Average secondaries pricing, calculated as a percentage discount to net asset value (NAV), stood at 92 percent for the first half of the year, with buyout funds still pricing the highest on average at 95 percent of NAV.
Average high bids as a discount to NAV by strategy were:
- Buyout: 95 percent
- Real estate: 92 percent
- Other: 85 percent
- Venture: 82 percent
Such small discounts were negotiated despite a backdrop of volatility in the euro and in oil prices and are in line with 2014 figures. Pricing for the full year 2014 was 92 percent, while pricing for the second half ran at 91 percent. However, Greenhill Cogent noted that given the continued upward movements in NAVs, dollar pricing has continued to increase.
For buyout funds, a bifurcation between pricing for higher- and lower-quality funds is emerging. This has led some sellers to have some unrealistic pricing expectations for lower-quality funds, as Secondaries Investor has previously reported. Tail-end funds price on average 10 percent to 15 percent of NAV lower than more recent vintage funds.
On the venture capital side, pricing was at its highest since 2007 in the first half of the year. “We believe in many cases, venture pricing is benefiting from large unrealised gains subsequent to the record date due to IPOs and up-rounds of financing at valuation levels that are significantly higher than the most recently reported carrying values,” the firm wrote in its report.
As far as transaction volume goes, Greenhill Cogent, Greenhill’s secondaries advisory team, estimated $15 billion of deals were completed in the first six months of the year, compared with $16 billion for the first half last year.
“On the heels of a record-setting $42 billion of transaction volume in 2014, the secondary market has showed no signs of slowing, especially in light of the fact that volume has historically been weighted towards the second half of the year,” the firm said in the report.
Large transactions have continued to be a hallmark of the market so far this year, with six deals over $1 billion, including both limited partners’ portfolios and GP-led restructurings, but there’s also high volume of smaller deals. The average marketed transaction in the first half of the year was about $300 million, while the median transaction was about $120 million.
Greenhill Cogent anticipates that total deal volume for 2015 could be around $40 billion. Other market participants seem to believe it will be higher than last year’s, as Secondaries Investor previously reported.