Direct secondaries to reach $17.7bn

Unrealised value in tail-end funds totals $345bn, which means there's room for further growth in the expanding direct secondaries market, according to NYPPEX.

Transaction volumes for direct secondaries are continuing to rise, according to data from secondary market advisory firm NYPPEX.

Laurence Allen
Laurence Allen

Volumes for the first half of 2014 stood at $6.1 billion, but that figure is expected to rise rapidly over the rest of the year to reach a record $17.7 billion by year-end, representing a 43 percent increase from 2013.

The overall picture for direct secondary volumes over the last 12 years is one of nearly relentless growth. The only slowdowns were seen between 2008 and 2009 and between 2011 and 2012.

Laurence Allen, chief executive officer of NYPPEX, told Secondaries Investor his firm believed there were no signs that this growth would tail off in upcoming years.

Source: NYPPEX

“We estimate there was approximately $2.3 trillion of unrealised value in all private equity funds worldwide as of 30 June. Of that, at least $345 billion is held by 2004 vintage or earlier tail-end funds,” Allen said.

Meanwhile, there were $32 billion dollars in available liquidity allocated for secondary purchases from secondary funds and institutions, he added. Secondary prices for fund interests however, were at historically high levels.

“We feel the obvious place for secondary buyers to seek best values are with secondary direct investments from tail-end fund sellers that are motivated to liquidate their funds,” Allen said. 

Verdane Capital and Industry Ventures are among the firms currently looking to unlock value via secondary direct transactions. Verdane recently closed Fund VIII, its largest fund to date, on SEK 2 billion (€220 million; $300 million). Similarily, Industry Ventures closed its largest secondaries fund to date on $425 million last December.

However, Allen said other primary private equity GPs have also taken advantage of the ‘best value’  NYPPEX sees from tail-end sellers.

“The general market believes that the largest secondary direct buyers are the dedicated secondary funds. However, we believe it is actually other general partners. The secondary direct market has morphed into a GP-to-GP market in recent years.”