More investors are using secondaries to rebalance their private equity portfolios and also as a more meaningful source of liquidity, research from Coller Capital has found.
With market volatility and uncertainty ongoing, a common concern among LPs in 2023 is the lack of liquidity. As such, 83 percent of LPs are looking to sell in the secondaries market primarily to rebalance their portfolios, while 77 percent want to increase liquidity, according to Coller’s Global Private Equity Barometer Summer 2023.
Compared with the Winter 2020-21 Barometer, far fewer LPs are using the secondaries market to lock in returns (21 percent) or to refocus their portfolios on the best-performing managers (39 percent).
“The secondaries market facilitates the liquidity needed across both GPs and LPs,” Katrina Liao, a partner at Coller, told Secondaries Investor. “You have GPs in the market who know they should exit some of their assets, and continuation vehicles give GPs another alternative – a way to hold the asset the longer and take it through its next value creation phase. In some instances, when a GP is exploring a sale of a company, and given the current macro environment, perhaps, they are not achieving the price they believe the company is worth, there is a point in which the GP says, ‘I am a buyer at this price. I could do this’.”
Liao noted that Coller is also starting to see the emergence of tender offer plus staple processes to facilitate the fundraising of future funds.
“These disappeared for a while; now they are coming back,” she said. “How successful these processes will be is still to be determined.”
When it comes to strategies, over 75 percent of LPs surveyed said they expect to see good investment opportunities for GPs focused on secondaries in the next two years. Mid-market buyouts and special situations took top spot as the most favoured strategy (both at 82 percent). Meanwhile, large buyouts, mega-buyouts and growth capital saw steep declines in investor appetite in the latest study, dropping 41, 36 and 32 percentage points respectively, from the Winter 2017-18 Barometer.
The study is based on the views of 110 private equity investors globally, with research undertaken during February and March.
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