Most LPs bearish towards secondaries

LPs from Canada, Norway and Benelux are all expecting to raise their deployment to secondaries, according to research by Rede Partners.

Investor sentiment towards secondaries improved slightly in an H1 2018 survey by advisor and placement agent Rede Partners compared with the second half of last year.

The firm’s H2 Liquidity Index puts investor sentiment toward secondaries at 45 on a scale where no change in sentiment is equivalent to 50, a more positive sentiment scores above 50 and less positive sentiment below.

The latest figure is up slightly on the 43 recorded in the second half of last year, and down on the 52 recorded in the first half of 2017, suggesting that LPs expect to commit slightly less to secondaries in the 12 months ahead.

Rede puts this down to the record amounts raised for the strategy in 2016 and 2017, $29 billion and $38 billion, respectively.

Dry powder in the secondaries market stood at $125 billion at the end of last year and is likely to increase as buyer demand grows, according to advisor Greenhill Cogent.

There was a notable regional disparity in Rede’s findings with respondents from Benelux, the Nordic region and Canada all expecting to increase their deployments to secondaries this year. Conversely, sentiment towards the strategy from UK investors has fallen to 35, compared with 70 in the first half of 2017.

Sentiment has declined among funds of funds – the main provider of liquidity to secondaries funds – to 64 from 73 between the last half of 2017 and the first half of 2018. It has increased among pension funds, insurance companies and endowments.

Overall, 95 percent of respondents said they expected to maintain or increase the amount of capital they allocated to private equity in the year ahead.

The Liquidity Index had participation from 165 LPs representing more than €6 trillion in assets under management and €1 trillion allocated to private equity, the report noted.