Expect a record year for secondaries volume this year and a significant uplift in transaction value compared with 2020.
That’s according to advisory firm PJT Park Hill, which anticipates there will be at least $150 billion of secondaries deal volume. Secondaries Investor sat down with Darren Schluter, managing director in its secondaries advisory group, to discuss the rationale behind the firm’s top five predictions for the secondaries market in 2023.
Volume will be at least $150 billion
Half of volume will go towards GP-leds, 40 percent to LP-led transactions and the remainder to financings, the firm predicts.
Driving that volume will be the involvement of non-traditional secondaries investors, which PJT anticipates will increase their participation in the market compared with previous years, particularly in larger GP-led transactions, according to Schluter. Alongside incumbent secondaries buyers, the adviser also anticipates new secondaries players with a more traditional profile will enter the market, pushing up deal volume.
Tight fundraising market will lead to innovative structures from GPs
In addition to staple deals and tender offers, PJT anticipates GPs will utilise new structures to address their LPs’ liquidity needs as fundraising timelines are extended.
This will come in the form of NAV loans and other preferred structures, which will be used to opportunistically provide liquidity to LPs, as well as address portfolio company capital needs, Schluter said, adding the number of investors focusing on this market has increased.
Resurgent Asia markets will drive in-region activity
Expect more dealflow out of Asia this year compared with previous years.
“There is tremendous two-fold opportunity across LP and GP transactions,” Schluter said.
PJT is seeing a meaningful number of investors in the region weighing portfolio sales over the next two quarters. Assets involved are primarily North American and European, he added.
On the GP-led side, the re-opening of China and stimulus initiatives are expected to drive activity as buyers reassess the region for investment opportunities.
Those opportunities are coming in the form of both blue-chip single asset opportunities as well as full fund processes for local RMB funds, Schluter said.
Normalised distribution pacing will drive deal volume
PJT expects 2023 will be the year for that golden word “clarity” after a year of market volatility which depressed deal volumes. It anticipates a more straightforward outlook for M&A and IPO markets in the second half of the year, leading to a positive impact on distributions. Should that occur, there will be a strengthening of buyer demand and pricing.
Expect more people moves
Secondaries’ game of musical chairs is far from over. As buyside entrants start business in earnest this year, PJT expects there will be more buyside professionals making moves in line with what the secondaries advisory world has seen in recent years.
“A number of the larger secondary buyers have been recruiting directly from undergraduate programmes for their junior personnel, creating an annual influx of new hires into the market,” Schluter said. That annual influx has created a pool of employees who are moving between buyside firms. “The buyside has recognised the need for talent and are doing a good job of addressing it from both angles,” he added.
The industry will also continue to hire from related industries, such as direct private equity, investment banking and law, PJT predicts.
Write to the author: email@example.com