Secondaries deal volume hit its second-highest quarterly total ever in the first three months of this year, according to research by London-based advisory firm PEFOX.
There were $6.6 billion worth of trades in the first quarter, second only to the fourth quarter of 2015 when transaction levels hit $6.8 billion. The huge amount of dry powder in the market means buyers can pay more, and sellers are finding this hard to resist, according to Kishore Kansal, PEFOX’s managing director.
“Even relatively old vintage vehicles are getting par-to-premium level bids,” Kansal said. “A lot of the sellers we advise are essentially saying it’s a premium or nothing.”
There is as much as $71 billion in dry powder for secondaries, according to a report by UBS.
While quarterly deal volumes are averaging $5 billion to $7 billion, average fundraising for secondaries is more than this, fuelling the seller’s market dynamics.
Quarterly deal volume is likely to remain high this year, provided there are no major market shocks that force a dislocation in pricing expectations, according to Kansal.
“The market is really heating up right now,” Kansal said. “There are a lot of portfolios stirring under the waves at the moment and I think they’ll come to market in Q3 and Q4. Our expectation is that, unless there is significant market turbulence, volumes will accelerate from here.”
PEFOX’s data comes from its library software, which covers transaction, pricing and fund performance data. The firm’s secondaries database covers more than 10,000 transactions.