Secondaries notch second-highest Q1 fundraising levels ever

Secondaries funds hitting final close raised $5.49bn in Q1 2018, with investor demand showing no sign of abating.

Secondaries fundraising has seen its second-best first quarter, with record high levels of dry powder set for further growth.

The seven secondaries funds that hit final close in the first quarter of 2018 raised a combined $5.49 billion, according to data from sister title Private Equity International. This was driven mainly by Portfolio Advisors Secondary Fund III and Newbury Equity Partners IV, which respectively raised $1.5 billion and $1.4 billion.

Eight funds hit final close in the record-breaking first quarter of 2017, with Strategic Partners VII, AlpInvest Secondaries Program VI and ICG Strategic Secondaries Fund II combining for $15.1 billion of the $18.49 billion that was raised.

The near-term capital available for secondaries investments, including leverage, is around $125 billion and set to grow as some of the largest buyers come back to market in 2018, according to a January report by secondaries advisor Greenhill Cogent.

In February, Secondaries Investor reported that Lexington Capital Partners was to return with its ninth fund, seeking $12 billion. The following month, it emerged that Coller Capital is targeting $9 billion for Coller International Partners VIII. Ardian is also expected back,  seeking around $8 billion for a mature secondaries fund, Secondaries Investor revealed.

While there’s clearly huge investor appetite for secondaries, questions remain about the long-term impact of these record levels of dry powder.

“Across the market there is this pressure to put dollars to work and come back and raise another fund while the market is so good,” says Sunaina Sinha, managing partner of secondaries advisor and placement agent Cebile Capital. “Most of the market is using leverage and that’s going to increase dry powder even further. The question in the background for investors is, is this going to push valuations even higher?  Will returns suffer over the long run?”