Secondaries fundraising falls off cliff in Q1

Capital-raising for private equity secondaries strategies plummeted 77% year-on-year for the three months to end-March, according to PEI data.

Fundraising for private equity secondaries vehicles plummeted in the first quarter of this year, with a lack of megafunds to buoy capital raising for the strategy.

Dedicated funds focusing on PE raised $7.1 billion between January and end-March, marking a 77 percent drop from the $30.3 billion recorded the prior year, according to preliminary data from affiliate title Private Equity International.

It is worth noting that Strategic Partners’ Fund IX and debut dedicated GP-led fund accounted for $25 billion of the $30.3 billion raised in the first quarter of last year.

Brenlen Jinkens, who leads PJT Park Hill’s LP advisory practice in Europe, told Secondaries Investor there was “nothing sinister” about the apparent drop-off in fundraising.

“It’s a snapshot at a point in the cycle,” he said. “Lots of larger funds raised [and] closed last year, and fundraising in 2024 is looking like it will be dominated by smaller funds.”

“The market is fundamentally undercapitalised, regardless of the quarterly fundraising numbers. While we’re seeing an influx of new entrants, it will take time for the buyside to grow to meet the opportunity.”

Undercapitalisation has been a focus point in recent months, with various market sources pointing out that this is the biggest barrier to the secondaries market’s growth.

“This is an industry that is undercapitalised,” Yann Robard, managing partner and founder of Dawson Partners, formerly Whitehorse Liquidity Partners, told Secondaries Investor during a video interview last month. “It’s long opportunity, short capital. Whenever there is a timeframe like this, generally speaking, capital lags the opportunity set. What we’re seeing is secondaries is a market that is ready to be capitalised in the way that it should be.”

By proportion, secondaries vehicles accounted for 4 percent of the $176.7 billion raised for private equity strategies during the period.

Overall, private equity fundraising fell roughly 10 percent during the period, from $195.5 billion recorded in Q1 2023. Fully 399 private equity funds closed during the quarter, with 13 of these for secondaries.

Vehicles from Committed Advisors and Banner Ridge were among the top 20 largest private equity vehicles that closed during the first quarter.

Committed Advisors Secondary Fund V was the largest secondaries fund to close, collecting €2.6 billion, beating its target by €200 million. The vehicle will acquire primarily mature private equity assets in the small and mid-sized segments of the private equity market across North America, Europe and emerging countries, Secondaries Investor reported in January. The fund will also invest in GP-leds and spin-out transactions as well as direct secondaries typically ranging from €10 million-€100 million in size.

Banner Ridge Secondary Fund V closed above its $1.4 billion target on $2.15 billion in January. The fund is seeking to back “high-quality GPs that have demonstrated an ability to succeed with both their winner deals, but also their troubled investments”, managing partner Tony Cusano told Secondaries Investor this year.

ICG‘s debut LP-led focused vehicle ICG LP Secondaries Fund I collected $1 billion. Manulife Investment Management‘s debut GP-led focused vehicle Manulife Strategic Secondaries Fund reached $610 million in aggregate commitments for its programme, Secondaries Investor reported.

Last year was somewhat of an outlier for secondaries fundraising, with large raises from firms such as Lexington Partners and Blackstone Strategic Partners, both of which raised more than $22 billion for their latest secondaries flagships. Overall, secondaries vehicles represented 11 percent of the $857.13 billion of private equity capital raised in 2023.

In 2022, secondaries made up 4 percent of private equity capital raised.