SI 50: A new stage of maturation, yet undercapitalisation remains

Rather than wait out overallocation, LPs have headed to the secondaries market to continue their investments into private assets. The opportunities, however, far outstrip demand.

Macro uncertainty has coloured this year’s SI 50 ranking. However, compared with previous crises, investors have begun to flock to manage their portfolios instead of sitting on the sidelines.

Firms raised $434.48 billion over the past five years compared with the $383.5 billion in commitments seen over the same period last year, according to the ranking published by Secondaries Investor and affiliate title Private Equity International this week.

“Contrary to previous periods of volatility… these investors have not frozen activity and waited for the denominator effect to abate, but rather have made the decision to sell portions of their portfolios so that they can continue investing and take advantage of this current vintage,” says Vladimir Colas, co-head of Ardian US and co-head of secondaries and primaries at the firm.

Blackstone Strategic Partners heads this year’s list for the second year in a row having bumped Ardian off the top last year for the first time since the SI 50 ranking began. Strategic Partners not only raised $51.3 billion for funds that closed between 1 January 2018 and 30 June 2023, it also secured the largest secondaries fund ever raised closing on $22.2 billion for Fund IX in January.

“The vast majority of sellers are not selling due to distress. It’s a misperception… less than 5 percent of all sellers over the last five years, based on our information, are selling due to distress,” Verdun Perry, global head of Blackstone Strategic Partners, said in our latest edition of Secondaries Investor’s Second Thoughts podcast also out this week.

Rather, LPs are heading to the market to deal with overallocation while some are pursuing active portfolio management, Perry said.

While GP-led activity was subdued in the first half of the year, market participants view it as a mainstay in the secondaries landscape.

Perry anticipates the GP-led portion of the market will “grow, in my opinion, tremendously over the next five to 10 years”, adding there is an “enormous opportunity there” with the vast majority of GPs having, in the past, sold something they wished they had held onto.

While secondaries firms have had their fair share of uphill battles in the rough fundraising market, figures are on the up. In total, $37.2 billion was raised by secondaries firms in the first half – up 29 percent year on year, according to Secondaries Investor data. What that data doesn’t show is the hard slog managers have faces to reach their targets – even if this is an area where there is piqued interest from institutional investors.

The secondaries market also remains undercapitalised versus the amount of opportunity available in the market. “Secondaries is probably the most undercapitalised area of private equity,” Colas said. “Most of the large secondaries players, including ourselves, have either recently raised or are raising new funds, but that still only leaves around $130 billion of dry powder in the market. [That’s] equivalent to a year’s worth of transactions.”

The market has certainly proved its worth to many cash-strapped investors in this current crunch. Its participants are banking on the fact that interest carries through in the form of commitments into the next cycle once overallocation concerns have subsided.

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