Sovereign wealth funds (SWFs) mostly sat on the sidelines in the first half of the year, but they are likely to become some of the more active sellers in the secondaries market in the second half of the year.
SWFs represented only about 1 percent of sellers in terms of volume in the first six months of 2015, according to the Setter Capital Volume Report released last week.
But buyers surveyed by Setter Capital anticipate that SWFs will represent 15 percent of sellers in the second half of 2015, the second largest group of sellers behind pension funds. Singapore’s GIC is currently in the market with a $1 billion offering of real estate fund stakes.
Some of the main SWFs have been forming teams and building capacity to be buyers in the secondaries market, but while they may be buying here and there, they have not become major competitors to secondaries firms.
“Sovereign wealth funds may actually turn out to be opportunistic sellers rather than competition on the buyside,” said Rudy Scarpa, a partner with Pantheon in New York. “It’s true that we see sovereign wealth funds sometimes competing for secondaries deals but they have a number of limiting factors.”
For example, their buyside mandates can be pretty rigid as they seek to acquire only certain funds being managed by certain general partners, he noted. In addition, while teams at SWFs have been growing, they still tend to be small, which makes it a challenge to properly screen the broader secondaries market and conduct due diligence on multiple portfolios.
“Lastly, the deal dynamic in the secondaries market has significantly changed in the last few years as multi-step sales processes that took place over months have now been compressed into several weeks,” Scarpa added. “Sovereign wealth funds, some with their slower internal decision making processes, may find it harder to compete in these new timeframes.”
Greenhill Cogent, in its mid-year report, also noted a change in the speed at which transactions occur in the past six months, with large transactions receiving binding portfolio bids within one or two weeks and large portfolio sales now being completed in six weeks or less.