Secondaries sentiment down amid bright H2 picture

Investor sentiment towards secondaries has dampened in the second half of 2018 according to research by advisor and placement agent Rede Partners.

The firm’s H2 Liquidity Index puts investor sentiment towards secondaries at 44 on a scale where no change in sentiment is equivalent to 50, a more positive sentiment scores above 50 and less positive sentiment below.

The latest figure is down on the 45 recorded in the first half of this year and on the 52 recorded in the first half of 2017, the highest figure across the four versions of the report. This suggests that LPs expect to commit slightly less to secondaries in the 12 months ahead.

Investor sentiment towards private equity generally was 63, compared with 65 in the first half of 2018.

Seventy-eight percent of investors expect to maintain or decease their secondaries investment activity over the next 12 months, the report notes. US and UK investors are most bearish in outlook, recording respective figures of 38 and 37 in the latest report. The most positive investors are in Southern Europe and the Nordics, which recorded sentiment of 63.

Funds of funds were the only type of investor to demonstrate more positive sentiment towards secondaries over the upcoming 12 months.

“The RLI score for secondaries deployment has remained flat for the last 18 months, so there is nothing to suggest a fundamental change in investors’ views,” said Rede’s head of secondaries Yaron Zafir. “What it does show is the continued prudence of investors around deployment following the record amount of capital raised for the secondary market in recent years, as well as some very large fundraisings that are currently ongoing.”

Co-investments remain popular, if less so than in the first half. Investors displayed a sentiment of 69, compared with 70 last time around. A full 100 percent of respondents said they expect to maintain or increase their allocations to co-investments in the following 12 months.

The slight drop-off in sentiment to private equity was driven by a five-point decrease among European investors. Rede cites the exit of the UK from the EU as a significant reason.

Overall, 90 percent of respondents said they expected to maintain or increase the amount of capital they allocated to private equity in the year ahead. LPs have shown a taste for new managers, which recorded sentiment of 66 versus 58 for existing managers.

The Liquidity Index saw 144 LPs take part representing more than €5 trillion in assets under management and €800 billion allocated to private equity.