Exit volume for private equity in the US in the second quarter of 2015 was the highest on record, which may prompt sellers on the secondaries market to hold off on sales due to good primary distributions.
The 2015-Q2 Private Equity Trends Report, released by industry lobby group Private Equity Growth Capital Council (PEGCC) on Wednesday, showed exits for the asset class totaled $125 billion for the quarter, an increase of 80 percent from the previous quarter and more than double the total volume of $60 billion for the same period in 2014.
The robust returns on the primary market may mean sellers will delay seeking liquidity of the secondaries market.
“A lot of sellers on the secondaries market are on hold because the inherent liquidity from private equity GPs is at an all-time high,” said Sunaina Sinha, partner at advisory and placement firm Cebile Capital. “Investors don’t want to generate even more cash from a secondaries sale because they don’t have enough places to deploy the cash fast enough.”
The main reasons sellers would use the secondaries market in this environment would be to sell tail-end and non-core assets, or if the price they were willing to transact at were quite robust, according to Sinha.
“Too much cash can be a problem,” she said.
Washington DC-based PEGCC’s report also showed investment volume for the quarter was $112 billion, the second highest level for Q2 since 2007.