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Secondaries fundraising breaks Q1 record as storm clouds roll in

Capital raising for secondaries vehicles exceeded the $19.74bn raised in the first three months of 2016, the previous high.

Secondaries fundraising had its best-ever first quarter prior to the market plunging into a coronavirus-related shutdown.

The 10 secondaries funds that held final closes in the first quarter of this year raised a combined $24.27 billion, according to Secondaries Investor data. This is the highest first-quarter total ever recorded, with only the first three months of 2016 coming close at $19.74 billion.

Just $2.74 billion was raised in the first quarter of last year out of a full-year total of $36.9 billion, according to Secondaries Investor data.

The fundraises enter a market that has largely ground to a halt due to impact of covid-19 and one that is likely to present abundant opportunities from forced sellers once valuations settle. It may prove more difficult for firms that are mid-fundraise and have already put capital from the fund to work – especially in more complex or riskier deals – to raise more capital.

“You’re not going to raise any more money because people will be pretty sceptical that those deals aren’t under water,” said one senior buy-side source.

The main driver of the first-quarter total was Lexington Capital Partners IX‘s final close on $14 billion, making it the largest vehicle yet raised for the strategy, Secondaries Investor reported in January. The fund had been in market since February 2018 targeting $12 billion to invest in portfolios of private equity limited partnership stakes and GP-led deals, as well as direct investments, equity co-investments and hedge fund positions.

Intermediate Capital Group‘s Strategic Equity Fund III, which raised $2.4 billion, was the second-largest fund to hold a final close during the quarter. The fund raised twice the amount collected for its 2016-vintage predecessor to invest in complex GP-led deals on a global basis.

StepStone Group, which raised $2.1 billion for StepStone Secondary Opportunities Fund IV, also made a significant contribution.

Lexington Partners‘ fund close pushed the average size of secondaries funds to close in the first quarter to $2.43 billion, more than double the full-year 2019 average of $1.15 billion, which was itself a record.