Secondaries market records second-biggest year ever – Evercore

LP-led deals drove the bulk of volume last year and accounted for 55% of total trading, according to data from the investment bank shared exclusively with Secondaries Investor.

The secondaries market remained robust last year despite macro headwinds besieging private markets.

Transaction volume in the secondaries market reached $114 billion, up from $103 billion the year before, according to data from investment bank Evercore’s FY 2023 Secondary Market Survey Results, shared exclusively with Secondaries Investor. The period was the second-biggest year on record for transaction volume.

“Lack of distributions via traditional exit channels further pushed the PE secondaries market into the spotlight, showcasing the powerful tools it can offer to GPs and LPs alike,” Mike Warakomski, managing director at Evercore, wrote in the report.

The report is based on a survey of more than 140 secondaries investors, including public and private pension plans, sovereign wealth funds and family offices. Just over one-third (37 percent) of the survey participants have secondaries investment vehicles that are larger than $1 billion.

It was the second-highest annual transaction volume in the LP-led market, with such deals driven by LPs’ desire for liquidity and a narrowing bid-ask spread, Evercore noted. LP-led deals accounted for the majority of last year’s activity at $63 billion in volume or 55 percent of total volume. On a dollar basis, this represents a 15 percent increase from $55 billion the prior year.

GP-led transaction volume also rose last year, reaching $51 billion, up from $48 billion the prior year. Such deals represented 45 percent of total volume. The proportion of GP-led deal volume has been decreasing since 2020 when they accounted for 53 percent of transactions.

For single-asset deals, these fell as a proportion of all asset deals, at 44 percent last year versus 52 percent in 2022.

Appetite for GP-leds was heavily influenced by LP portfolio pricing, according to Jim Tilson, a managing director at Evercore. “Interest in [continuation vehicle] deals is much higher when the LP market is pricing at 90 percent-plus than when it is trading closer to 80 percent,” he noted.

Dry powder for secondaries hit a historic high of $166 billion. Besides large fundraises by big secondaries investors, several direct private equity firms and individuals targeting GP-led transactions have also entered the market, Evercore noted.

“While 2023 was as a more challenging fundraising environment overall, several major buyers announced sizeable closes in 2023 and are being increasingly sophisticated in  partnering with co-investors for deployment in the secondaries market, often at scale in GP transactions,” managing director Fred Stonell noted.

Most secondaries investors avoided using third-party leverage in transactions as interest rates remained high last year. Only 16 percent of respondents said they used debt for secondaries investments, down from 27 percent the prior year, according to the report. For those who did borrow from third parties, the debt-funded portion of deals fell to 32 percent last year from 37 percent the prior year.

Evercore expects dealmaking momentum to carry into this year as LPs continue to seek liquidity and GPs look to improve their distributed to paid-in ratios. Buyers, on the other hand, will “remain very selective” in deploying capital and may shift towards mid-market opportunities, which have a higher likelihood of closing.

“The market appears particularly balanced as we start the year, supporting the idea that 2024 has the potential to be the biggest year for secondary volume to date, including increased adoption by credit and other asset classes,” MD Justin Resnick wrote.

– Adam Le contributed to this report.