Probitas: 82% of investors now integrate secondaries strategies

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Secondaries are gaining ground as a standard tool for limited partners’ portfolio management, according to statistics compiled by placement and advisory firm Probitas Partners.

Only 18 percent of the 137 global investors polled for the firm’s ‘2014 Private Equity Trends Survey’ said they did not use the secondaries market in any way; that compares to 33.5 percent who gave the same response to Probitas for its 2007 trends survey.

Over that seven-year period, there’s been an increase in the buying and selling of fund interests in particular: 45 percent of investors now actively purchase LP interests on the secondaries market, up from 36.4 percent in 2007. Meanwhile, 31 percent have sold – or are thinking about selling – fund interests, up from 18.4 percent in 2007.

“There is less intermediation now and more direct business, more auctions,” said Kelly DePonte, managing director and head of research for Probitas. “It shows that the market has become more developed. Lots of large LPs have begun to use secondaries to rebalance their portfolios; this means that the overall volume of secondaries is going up.”

Changing attitudes among primary fund managers have also impacted market dynamics over recent years, he added. “Ten or 12 years ago, when an LP told a GP that they wanted to get out, the GP would get concerned and although this wasn’t necessarily a real problem, they would probably still take it negatively. Nowadays, GPs are more willing to work with LPs on this. They look at it as a way to develop fundraising strategies in the future and nurture a relationship with a new buyer.”