Setter pegs H1 secondaries volume at $15bn

Toronto-based secondaries advisor Setter Capital puts secondary transaction volume at more than double the previously reported figure – and predicts that 2013 will be a record-breaking year.

Global secondaries deal volume during the first half of 2013 was much larger than previously reported, according to new report from Setter Capital. The Toronto-based secondaries advisor estimates that secondaries buyers completed about $15 billion of transactions during the first six months of 2013, roughly double the $7 billion reported in Cogent’s first-half pricing report.

Setter arrived at the $15 billion figure by pro-rating the $6.7 billion of deals reported by survey participants across the larger market of “active buyers, including those who did not respond”, according to the firm. Setter sent its survey to more than 100 active secondary buyers and received a 45 percent participation rate.

“There were about $3.5 billion of deals mentioned in the press that were for the most part not included in that $6.7 billion figure,” said Peter McGrath, managing director at Setter.

Of the more than $3 billion of reported secondary transactions during the first half of the year, only $850 million were completed by survey respondents.

“We cover over 1000 non-traditional buyers, such as big pension funds, and they were, by-and-large, not polled,” McGrath said. “Our takeaway is that the secondary market is much bigger than probably people thought.”

Setter estimates that restructurings of so called “zombie funds”, or funds that have gone on past the end of their contractual lives, totalled $3.5 billion during the first half of the year, while real estate secondaries stood at about $3 billion.

Respondents to Setter’s survey projected their volume in the second half of 2013 to rise by about 30 percent, leading the firm to project about $18.5 billion of secondary activity during the last six months of the year and $34 billion of total activity for 2013.

“When we make a prediction of $34 billion for this year, that’s just looking at the traditional buyers,” McGrath said. “There are so many deals that go on that fly below the radar screen that are un-intermediated with non-traditional buyers [and] groups like that.”

Setter has been active in the secondaries market since 2006 and claims to cover over 7,000 institutional investors and over 3,000 fund families – by which it means funds managed by a particular GP that have a similar strategy.