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M2O: full-year volume breaks $100bn

While GP-led deals managed to retain their dominance over LP deals by a thin margin, both halves are poised for continued growth this year.

The first indications of full-year 2021 volume are in, courtesy of M2O Private Fund Advisors’ forthcoming survey, which Secondaries Investor has seen exclusively.

The survey put estimated secondaries market transaction volumes at $100 billion last year, largely meeting baseline expectations, according to the White-Plains-based advisor. GP-led transactions edged out LP-driven deals to retain a majority by a margin of 52 percent to 48 percent.

“It’s nice to break the $100 billion mark, but it doesn’t feel like a dramatic leap to me,” said M2O’s head of LP secondaries Jake Stuiver. Volume could have been materially higher had supply on the LP side thawed earlier in the year, he added.

The firm predicts 2022 volume could rise to $125 billion, M2O predicts.

The year has begun with a bang. CalPERS is reported to be in market with what could be the largest-ever PE secondaries sale. Recent PE outperformance coupled with strong secondaries pricing and remaining backlogged supply coming to market could see other large deals.

“Clearly, people are making decisions not only that pricing is there for them to feel comfortable with, but also that the capacity is there for the market to be able to absorb deals of these sizes,” Stuiver said. Average top pricing for buyout funds is between 105 and 100 percent of NAV, according to the report.

These deals are going to have to fight for the attention of buyers, who are already feeling overwhelmed by the amount of launches going on, he added.

GP-leds keep catching on

M2O is seeing an expansion of continuation fund activity beyond just an asset or portfolio of assets from a fund. GPs are retaining minority stakes in third-party sale processes or buying out an unaffiliated shareholder’s minority interest in an asset the GP already owns, according to Mike Custar, partner and head of secondaries.

Single-asset volume edged out multi-asset- by 54 percent to 46 percent. While Custar expects single-asset volume to remain robust, he suspects the pendulum could swing back toward the latter as buyers look for diversification.

As more GPs make their way to the market, deals are also getting larger than ever – the median deal size last year was $590 million, including NAV and unfunded commitments. As a result, 74 percent of deals included multiple buyers.

For the foreseeable future, the pace of supply coming to market is going to more than outpace what GPs can potentially raise in dedicated capital, Custar said.

Show me the money

On the fundraising front, 55 percent of groups surveyed indicated they were in the market, with an average target of $1.5 billion. LP stakes edged out GP-leds 52 to 48 percent in terms of dedicated capital raises.

However, despite this momentum, available capital is barely staying ahead of market supply. The $190 billion in extant dry powder covers less than two years of supply.

The dealflow coming to market will put pressure on today’s strong pricing, though buyers understand the need to keep that pricing competitive in order to entice LPs to sell, according to Custar.

“There’s going to be this constant pressure of ‘do we have enough capital out there?’,” he said.