Secondaries fundraising gives private debt a run for its money

The 10 largest secondaries funds in market are targeting a combined $70.5bn, compared with $39.45bn being sought by the largest debt funds, Secondaries Investor data show.

Although private debt remains the larger fundraising market overall, the biggest funds are in secondaries, according to data compiled by Secondaries Investor.

The 10 largest secondaries funds in market are targeting a combined $70.5 billion, compared with $39.45 billion for the 10 largest debt funds. 3G Special Situations Fund V, a North America-focused distressed vehicle targeting $10 billion, is the only debt vehicle that would make a list of the five largest funds in market across both the private debt and secondaries asset classes.

Private debt funds with known targets were seeking $257 billion as of the end of the second quarter, according to sister publication Private Debt Investor. Secondaries funds were targeting $87.9 billion.

As well as being able to demonstrate strong returns, the growing array of deal types that secondaries funds can do has merited larger fund sizes, said Michael Murphy, co-head of the private funds group at Credit Suisse.

“Whereas the private debt fund space has remained substantially focused on sponsor-backed corporate lending and has grown with the market, secondary fund strategies have continued to evolve to encompass GP-led deals, preferred equity and adjacent asset classes such as infrastructure,” he said.

Janet Brooks, managing director at placement agent Monument Group, said that in Europe, where private debt is a relative newcomer, not all investors have separate allocations and some higher-returning debt strategies are having to compete for the private equity allocation.

“We expect to see more growth here as investors continue to appreciate its advantages over more traditional debt asset classes,” she said. “However, as with all strategies, investors also need to be convinced of a continued growth in the opportunity set in order to sustain return expectations.”