Half of LPs plan to tap the secondaries market in the next two years – report

LP interest in using the secondaries market continues apace amid an overall flat pricing environment for fund stakes, according to research by Coller Capital.

Just over half of LPs plan to utilise the secondaries market in the next two years either as a buyer, as a seller, or as both, Coller Capital’s Global Private Equity Barometer Winter 2022-23 found.

The total figures are little changed from when the secondaries firm conducted its survey a year ago.

The LP-led market is becoming “quite dynamic” with some “very interesting discussions happening, some of them straightforward discussions, some of them look a little bit more structured, but solving for different types of needs”, Hani El Khoury, a partner at Coller, told Secondaries Investor.

“Globally liquidity, to a large extent, has dried out, except for the secondary market which is still providing liquidity… it’s quite an active market and I expect it to remain dynamic in the short term on the LP-led side,” El Khoury added.

Average pricing for LP interests was 92 percent of net asset value in the first half of the year, little changed from 91 percent recorded for full-year 2021, according to investment bank Greenhill. Buyout funds traded at 88 percent of NAV on average between January and June, plummeting from 97 percent last calendar year.

Coller’s findings are in line with affiliate title Private Equity International’s LP Perspectives 2023 Study, in which 22 percent of respondents said they intend to sell stakes only in the next 12 months – representing the largest portion of LPs to do so in the past five years. A further 6 percent plan to both buy and sell.

Broken down, 20 percent of the 112 respondents to Coller’s latest survey said they would only sell assets on the secondaries market, while 17 percent said they would only buy assets and 14 percent planned to both buy and sell.

Those LPs looking to buy in today’s market are “large, [those that are] sophisticated enough and [have] the internal resource or capabilities to do that, which we know is not everyone”, El Khoury added. “Naturally, it will have to be either geographically a cash-rich LP, or more structural LPs that have liquidity.”

El Khoury expects it to continue to be a buyer’s market following the trend of recent years where supply of opportunities has outstripped the amount of secondaries capital looking to be deployed. “It will at least sustain, if not improve further, which I think puts the buyer in a good position. Having said that, you need some balance in the market to create significant volumes.”

Almost two-thirds (61 percent) of Asia-Pacific LPs believe that their private markets portfolios are both well-positioned in today’s market environment and that they could also benefit from further modifications, Coller’s report found. Some 40 percent of North American investors and 28 percent of European investors responded similarly.

Of those LPs considering portfolio tweaks, 63 percent were considering changes by both investment stage and by sector. Meanwhile, 59 percent will consider modifying their portfolios by asset class and 55 percent by geography.