Setter’s mid-year report in five charts

The H1 2018 Volume Report, compiled by the secondaries intermediary Setter Capital, is based on a survey of 100 buyside respondents, including the 10 largest buyers in the market. Below are five key findings from the report.

1. Buyers are set to broaden their scope 

In the first half of this year, 17 percent of participants said they had broadened their scope to encompass other alternative assets such as infrastructure, real estate and directs. This compares with 18 percent registered in the first half of 2017. This figure is expected to increase considerably in the second half of 2018.

2. Perception of leverage in market is relatively unchanged

Only 15 percent of respondents believed the level of leverage being employed by secondaries buyers was meaningfully higher, compared with the first half of last year (29 percent).

This suggests that either the amount of leverage being employed has plateaued or, as Setter vice-president Larry Abraham-Ajayi suggests, buyers are becoming used to it.

“We’ve witnessed a widespread increase in the use of leverage by buyers in the last few years and this levelling off is simply a reflection of the market’s maturity,” he said. “This number will continue to increase, albeit at a much slower pace.”

3. Real estate volumes drop

While Setter registered a 29 percent year-on-year increase in private equity transaction volumes to $31.5 billion, real estate volumes, which include the transfer of fund stakes and direct investments, dropped by 2.4 percent to $3.1 billion.

“The RE secondary market is smaller and less mature than the PE market and volume can be greatly influenced by a small number of large portfolio sales,” Abraham-Ajayi said.

4. Intermediation is getting more, not less common

Firms including American International Group and PAI Partners have run sales without hiring sellside advisors this year, as Secondaries Investor reported. Such cases may not be the norm as levels of intermediation are rising, according to Setter. There was $23.7 billion in intermediated secondaries deal volume in the first half, equivalent to 64.6 percent of the total. In the first half of last year, intermediated deals accounted for 59.9 percent of the total.

“We expect the level of intermediation to rise in response to the entrance of new agents, and as sellers struggle to stay on top of the ever-growing buyer universe,” Setter notes.

5. More GPs are looking to restructure

According to the report, 53 percent of respondents felt that meaningfully more GPs were seeking to liquidate or restructure funds, compared to a year earlier. The number of stapled deals appears to have fallen, with 63 percent of respondents noting that similar numbers of GPs sought staples, compared to 71 percent in the first half of last year.