When secondaries participants gathered in February for Adams Street’s annual ski event at Utah’s Deer Valley Park, a healthy debate erupted over exactly how big deal volumes could get. The consensus fell somewhere between $250 billion to $500 billion.
“There were some outliers who would say a trillion,” one buyer who was at the event told Secondaries Investor. Yann Robard, founder of Whitehorse Liquidity Partners, for example, expects the industry to reach that figure or more by 2030. “There were [also] some doomsayers saying, ‘Look what’s happening in the outside world… we’re going to see a swoon before we see an improvement’,” the buyer added.
The conversation was held off the back of a bumper year. Deal volume topped $130 billion in 2021, of which an estimated $60 billion to $65 billion came from GP-led transactions.
Of course, much has changed this year. A war in Ukraine, inflation, rising interest rates and an energy crisis have all contributed to market uncertainty, particularly around valuations.
Despite this, secondaries activity broadly has proven resilient: Jefferies put first-half global secondaries volumes at $57 billion – $11 billion up on the previous record H1 of 2021. Evercore pegs H1 volume at $53 billion, up around 11 percent year-on-year. Both reports found, however, that GP-led share of overall volume had contracted year-on-year.
Meanwhile, the universe of buyers is rapidly expanding. Apollo Global Management is the latest blue-chip to join the party, having last week launched its secondaries and sponsor solutions platform, S3, which will cover a range of secondaries activities across multiple asset classes.
Apollo’s entry echoes that of Ares, Franklin Templeton and CVC, all of which have acquired secondaries players in recent years, as well as Brookfield and TPG, which are building dedicated teams. Advisers are also bulking out their secondaries capabilities, with Eaton Partners, Guggenheim Partners, William Blair, UBS and FIRSTAvenue among those staffing up this year.
As it stands, secondaries volumes have been limited by the amount of capital available to deploy. With more GPs lining up to keep their trophy assets in their hands for a longer period of time, some buyers have lamented the lack of demand to match supply.
It’s true that secondaries fundraising, as in many other asset classes, has stuttered this year. After a fundraising bonanza in 2020 and 2021, activity fell 30 percent year-on-year to $31.2 billion in the first half, according to Secondaries Investor data. Secondaries funds were seeking $124.7 billion as of June and as the universe of market participants continues to grow, so too should the amount of capital needing to be put to work, particularly among blue-chip engines that can access different pools of capital beyond traditional institutional bases.
What’s more, GP-led transaction volume, squeezed in the first half due to pricing uncertainty, is expected to pick up over the coming quarters as buyers and sellers get more pricing certainty from second quarter marks. This year’s total might not exceed that of last year but as confidence returns and new entrants pick up steam, 2021’s record may not stay intact for long.