Secondaries deals to increase – BNY Mellon

Buying and selling of private equity fund stakes is expected to increase over the coming year, according to a study by the global investment company.

Secondaries investments are set to grow in the next 12 months.

More than 70 percent of respondents surveyed by the Bank of New York Mellon and the Financial Times’ research service FT Remark said they would increase sales of private equity commitments in the secondaries market in the next 12 months.

Of the 400 senior executives from institutional investors who took part in the survey, more than 60 percent also said they would acquire more private equity commitments over the coming year.

The main reason, according to Split Decisions: Institutional Investment in Alternative Assets, is that private equity has become more mature as an asset class. Funds are motivated to sell in the secondaries market mainly to clean up their portfolios and reduce the number of fund relationships they manage, unlike previously where sellers were often in distressed situations. For buyers, it is offering investors the opportunity of a faster route to good returns.

An Asia-Pacific based chief investment officer said in the survey: “There is a robust and maturing secondary fund market, which has attracted investor attention as the returns are more promising and the risks are lower compared with the other types of funds.”

Attractive valuations are the most important feature that draw investors to make acquisitions in the secondaries market.  The other reasons are lower risk, a shorter investment horizon and increased diversification of private equity holdings.

Capital raised by secondaries firms in 2014 totalled $27 billion globally, compared with just $9.9 billion in 2011, according to Preqin figures cited in the report.

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Source: BNY Mellon/FT Remark.