Family offices, fund of funds and other new entrants to the buy side of the secondaries market are driving prices for fund interests up, according to François Gamblin, chief executive officer at SecondCap, an online platform for transferring interests in private funds.
Deal flow is continuing to increase. Through its SecondaryNet platform, SecondCap transacted the same number of deals during the first half of 2014 as it did during all of 2013, Gamblin told Secondaries Investor.
“There is currently strong competition on the buy side from new entrants into the market such as fund of funds and family offices who often have a lower cost of capital to dedicated secondaries firms, which is having an upward impact on pricing,” said Gamblin. “They will be perhaps targeting IRR of 10 to 12 percent rather than the 15 to 20 percent sought by dedicated secondaries firms.”
General partners’ attitudes toward secondaries transactions are also changing, Gamblin said, adding that secondaries sales are becoming more accepted.
“GPs are becoming easier to deal with in terms of secondaries transactions involving their funds. The world has changed and many GPs are struggling to raise money. [T]hey have realised that they have to offer ‘services’ to their limited partners, which can involve greater cooperation in liquidity events.”
Although the SecondCap platform matches buyers and sellers online, deals that need to be structured can still be carried out online with SecondCap acting as an advisor, Gamblin explained.
SecondCap was founded in 2010 and automates the secondaries transaction process by matching buyers to sellers. The platform typically handles trades of about $20 million and will continue to focus on small- and medium-sized deals. Over $1.1 billion in fund interests have been listed for sale on the SecondaryNet since the site launched.