UBS: Secondaries market dynamics in five charts

A highly competitive market is leading to reduced return expectations and lower success rates, according to a report compiled by UBS and obtained exclusively by Secondaries Investor.

The 2018 Secondary Market Survey and Outlook report, compiled by the secondaries advisory team at UBS and seen exclusively by Secondaries Investor, sheds light on how an increasingly competitive market is affecting investors’ expectations. Below are five key findings from the report.


1. Success rates marginally down from 2016

The rate of bids being converted into done-deals dropped slightly last year as increased competition made it tougher to win bidding processes. “Buyers remain selective on which transactions they pursue aggressively,” the report noted.




2. Returns expectations are decreasing

Increased competition has also put downward pressure on expected returns, with 23 percent of buyers indicating that they have lowered their return targets over the past year.




3. Knowing the seller remains important

Respondents indicated that they were a preexisting investor in 55 percent of the funds they acquired, marginally down on last year. “As the market continues to grow and mature, this will likely increase,” the report noted.




4. Expected returns for plain vanilla deals are trending downward

Return expectations for LP transactions have declined since 2015. Last year, for LP stake sales, 86 percent of respondents expected a multiple of 1.74x or below, compared with 81 percent in 2015.




5. GP-led deals are expected to drive returns

In the case of GP-led deals, 70 percent of respondents in 2017 said they expected a multiple of 1.99x or below, compared with 63 percent in 2015.