Time to think twice on infra secondaries?

Kempen Capital Management’s director, private markets, Marvin de Jong, warns that the covid-19 crisis is not a re-run of 2008.

Marvin de Jong

This article appears in the September issue of sister publication Infrastructure Investor.

This year is poised to become the biggest ever for secondaries fundraising, according to data from Preqin. In June, Ardian’s ASF VIII raised $19 billion in commitments for private equity secondaries, thereby smashing its $12 billion target. And in late July, Blackstone announced the final close on $3.75 billion for its Strategic Partners Infrastructure III.

The general view in the market is that, due to covid, the private equity and infrastructure markets are under pressure and this may therefore be a good time to allocate to secondaries. The situation is reminiscent of 2008-09 – which, with hindsight, was a perfect time to allocate to secondaries.

However, the market dynamics for PE and infra secondaries are not comparable to those during the global financial crisis. The performance of secondaries funds currently being raised will ultimately disappoint, especially given investors’ high expectations.

Unlike during the previous crisis, there are almost no discounts in the market for secondary private equity and infrastructure deals. Significant discounts are only available for unpopular funds, such as those with a sectoral focus on energy. Top-quartile funds trade at NAV or even at a premium.


Public equity markets have recovered quickly from the drawdown in March, and secondaries fund managers have few negotiating arguments to demand a discount for illiquid secondary trades. Unlike 10-12 years ago, there are no distressed sellers in the market that need cash and have to sell their private equity positions at all costs.

In 2008-09, several large banks were also distressed sellers of illiquid positions on their books. Banks currently have much less private equity or infrastructure on their balance sheets. Pensions have increased their exposure, but are unlikely to be distressed sellers.

There is far more competition looking to invest capital in secondaries. The record amount raised by secondaries players in recent years will have to be invested in the near future. Funds will bid up against each other when a secondaries deal is up for sale, especially as there are far more brokers in the market than in 2008-09. This will result in further price rises for secondaries deals, which puts pressure on the expected returns for the strategies.

Many secondaries funds add leverage to increase target returns. This raises the risk profile – by providing additional downside risk – compared with the previous cycle. Managers that are raising funds are advertising with high returns from the past. But the market dynamics then were completely different.

Marvin de Jong is director, private markets at Dutch specialist asset manager Kempen Capital Management.