Neuberger Berman sees a possible record year for secondaries

Neuberger Berman expects a potential record year for secondaries transaction volume in 2015.

The investment manager is forecasting that deal volume for this year will be between $35 billion and $45 billion, as discussed during a 2016 outlook webcast held by the firm last week.

Anthony Tutrone, global head of alternatives at Neuberger Berman, noted that “2014 was a record and the estimate for 2015 is for another potential record year,” adding that much of the activity was seen toward the second half of the year. “Looking at 2016, we expect this high level of secondaries transactions to persist.”

According to Neuberger Berman’s estimates, there was $42 billion-worth of transactions in 2014, up from $27.5 billion the previous year.

The high volume continues to be mainly driven by financial institutions selling due to regulatory and capital issues, as well as the greater acceptance by large institutions, like endowments and pensions, of the secondaries market to manage their portfolio strategically, Tutrone said. In turn, it has been a tremendous source of opportunities for secondaries buyers.

On the primary side in the buyout market, Neuberger Berman cautioned that valuations continue to be on the high side, despite a pullback in valuations and leverage ratios.

“As a result, we’re not focused on private equity strategies that are focused on buying cheap, or on financial engineering,” Tutrone said. “We are focused on private equity firms that have expertise around implementing and operating and [that have] a strategic plan that would accelerate earnings growth and position the companies they own for high-return exits whether it would be through the IPO market or the M&A market.”