StepStone Group’s secondaries funds are outperformers relative to their peers in this year’s SI 50, the exclusive ranking of the biggest secondaries capital-raisers over the last five years, put together by affiliate title Private Equity International.

The full results of the SI 50 ranking will be revealed next month.

Though this performance data is not exhaustive, PEI has compiled returns for vehicles closed in or before 2019 for which performance data was available.

The La Jolla-headquartered alternatives manager has generated an average 29.5 percent internal rate of return net of fees across six funds closed in the period, according to PEI data. Those vehicles include three funds from venture capital and growth equity outfit Greenspring Associate’s secondaries funds, which it acquired in 2021.

StepStone is in the market with StepStone Secondary Opportunities Fund V, which had raised approximately $1.6 billion as of June, Secondaries Investor reported at the time. It is also raising its latest real estate and venture capital secondaries funds.

Secondaries is “an increasingly important part of the business”, chief executive Scott Hart said on StepStone’s first-quarter fiscal year 2024 earnings call. The firm is “particularly well positioned to continue to capitalise on [the strategy]” given its relationship with GPs and LPs, he added.

Industry Ventures and Portfolio Advisors took the second and third outperformance spots in the list of 24 secondaries firms for which performance data was available. Industry Ventures had 14 funds close in or before 2019, generating a 27 percent average IRR, while Portfolio Advisors saw an average IRR of 24.9 percent across two vehicles.

The 24 firms included in the ranking achieved an average IRR of 16.5 percent net of fees across 115 funds closed in or before 2019.

The market was largely dominated by LP-led deals in the period in question, accounting for an average of 70 percent of secondaries dealflow, Sunaina Sinha-Haldea, global head of the private capital advisory group at Raymond James, said in a statement shared with Secondaries Investor. It is a trend that began to shift in 2020, with GP-led deals making up 50 percent of transaction volume from then on.

Funds with vintages of 2020 and beyond are in the midst of a slower distribution cycle than those showcased in this data, which would negatively impact their IRR, Sinha-Haldea added. Portfolio transactions tend to use leverage, while the increasing cost of debt is also reducing the delta between the levered and unlevered returns for funds with vintages in 2022 and beyond.

2022- and 2023-vintage transactions, however, are expected to benefit from the dislocation of supply and demand and an undercapitalised market. This confluence of factors has allowed buyers to transact higher-quality dealflow at a lower price, thus leading to what is expected to be a stronger return profile, Sinha-Haldea said.

It is worth noting that different secondaries funds will have different return profiles, depending on the underlying asset classes they are targeting. An infrastructure secondaries fund, for example, will likely perform very differently to one targeting growth or venture.

Still, performance is key at a time when competition for LP capital is fierce and benchmarking the asset class remains a useful exercise. Incumbents are also battling against market newcomers, which include brand-name private capital firms.

The secondaries market is enjoying particular interest from investors as distributions have dried up and exit markets have slowed amid market uncertainty. Capital raised in final closes for secondaries strategies across all asset classes between January and June rose to $37.2 billion, according to Secondaries Investor data. This marks a 29 percent jump on the same period last year and is roughly in line with the amount raised in H1 2021.

The total amount raised during the period eclipses all of 2019, when just $36.9 billion was raised.

Capital is flowing towards fewer hands, however, with 16 vehicles taking all the capital in the first half of the year. In full calendar year 2022, a total of 61 funds held a final close, and 86 did in the year prior.

You can view the 2022 SI 50 ranking here ahead of the 2023 edition being released in September.