Secondaries skyrockets to second-most popular strategy in Q1

More capital was closed on for private equity secondaries in the first quarter of the year than for any other strategy outside of buyouts.

Capital raising for private equity secondaries funds is taking up a larger proportion of total fundraising, buoyed by Strategic Partners‘ record close at the beginning of the year.

Dedicated secondaries vehicles focusing on private equity accounted for almost one fifth of the $163.9 billion raised for private equity in the first quarter of this year, according to affiliate title Private Equity International data. In the same period last year, secondaries funds accounted for just 2 percent of capital raised.

By capital, secondaries was more popular than all other strategies bar buyouts. Buyouts still accounted for the lion’s share of fundraising at 51 percent.

The increase in popularity of secondaries funds is tied to their evolution as a more mainstream strategy that has become better understood, according to Jake Stuiver, a director within investment bank William Blair’s private capital advisory unit.

“There was a point at which secondary funds were thought of by many investors as akin to funds of funds,” Stuiver told Secondaries Investor. “As institutions grew their programmes and saw themselves outgrowing the fund of funds model, they didn’t necessarily think of secondaries as a suitable investment because they thought they could go out and make those investments themselves.”

“Secondary funds are now very much front and centre in terms of offering a multi-manager strategy that reflects a capability that most LPs don’t have in-house,” he said. Also driving the increase in popularity of secondaries funds is the rise of GP-led processes which are benefitting from more opportunities amid the slowdown in the M&A market, Stuiver added.

By dollar value, PE secondaries funds closed on $30.3 billion across eight vehicles. Blackstone’s secondaries unit raised the two largest vehicles to close during the quarter: $22.2 billion for Strategic Partners Fund IX and $2.7 billion for its GP Solutions fund. Its flagship Fund IX was the largest vehicle of any strategy to close during the period, ahead of Permira‘s $17.8 billion for Permira VIII.

The amount of capital raised by secondaries funds jumped almost 1,000 percent year-on-year, compared with the $2.8 billion raised on the first three months of last year.

Private equity secondaries funds in market were seeking a total $107.4 billion as of 21 April, PEI data shows. The largest of these are Ardian Secondary Fund IX and Lexington Capital Partners X which are both seeking $15 billion; Dover Street XI which is seeking $13.5 billion; Coller International Partners IX which is seeking $12 billion and AlpInvest Secondaries Program VIII which is seeking north of $10 billion.

Total private equity funds in market were seeking approximately $1.24 trillion between them.

– Alex Lynn contributed to this report.