LP trades buoy H1 deal volume amid 22% drop – Evercore

Secondaries deal volume is down on figures reached across the same period last year, according to data from Evercore, which sees reason to be optimistic about increased activity in the second half.

The secondaries market dipped year-over-year, reaching $42 billion in the first half, according to details shared with Secondaries Investor ahead of the release of Evercore’s H1 2023 Secondary Market Survey.

This marks a roughly 22 percent drop on the $54 billion recorded in the first half of last year.

LP-led deals took the larger share of market activity at 61 percent, reaching $25 billion of volume. This represented the second best first-half on record for these transactions, down slightly on the $26 billion recorded last year, according to Evercore. Such deals made up 49 percent of activity in the first half of last year.

Some sizeable processes have come to the market, including Kaiser Permanente’s $6 billion portfolio sale, New York State Teachers’ Retirement System’s sale of a portfolio valued at around $6 billion, and Norinchukin Bank’s process to sell a portfolio that is around $1.5 billion or more in size, as Secondaries Investor and affiliate title Buyouts have reported.

LP-led processes are moving into the second half “with greater velocity and momentum than last year, as the relative rebound in pricing in Q2 drives volume up”, the report said. “More large LP sales are coming to market, or currently closing, than were witnessed at the same time last year, presenting a larger volume overhang.”

GP-led deals made up 39 percent of market volume, with only highly compelling transactions considered by buyers in the first half, the report noted. Single-asset deals represented 45 percent of GP-led deals compared with 50 percent across the first half of 2022.

The bar for single-asset continuation fund transactions was high in the first half “given the abundance of LP-stakes portfolios at attractive discounts in early H1, coupled with perceived elevated valuation levels across most PE assets”, the report said.

Large continuation fund transactions in the first half include Oakley Capital’s more than €1 billion vehicle for German university group IU Group with TPG GP Solutions, HarbourVest Partners, Goldman Sachs Asset Management, Glendower Capital and Pantheon lining up on the transaction. One Equity Partners also closed on a $1 billion continuation fund for two Europe-headquartered assets – aftermarket construction parts manufacturer and distributor USCO, and laboratory glassware manufacturer DWK Life Sciences. AlpInvest Partners and HarbourVest co-led on the transaction.

Evercore expects GP-led activity will accelerate in the second half “as public markets continue to recover, competition for LP portfolios increases and LPs demand for liquidity persists in a soft M&A market”.