What the fundraising figures don’t tell us

A four-year low? That's the picture our 2019 fundraising figures, published on Monday, paint about the state of the secondaries market. Dig deeper, though, and all is not what it seems.

On Monday we published our latest full-year fundraising figures and on the surface it looks like the air has been let out of the market. Last year was the lowest for secondaries fundraising since 2015 and a 22 percent drop on 2018, with just $36.9 billion amassed in final closes.

Should market participants be worried? We think not. Two days after we published the data, Lexington Partners said it had raised a whopping $14 billion for its ninth flagship, the largest pot of capital ever for the strategy. Lexington’s raise doesn’t account for additional co-investment interest, meaning the firm will have even more secondaries firepower at its disposal over the fund’s investment period.

Lexington’s is the first of several megafunds to close this year. Ardian is expected to raise at least $19 billion and with firms including Goldman Sachs Asset Management, Coller Capital, HarbourVest Partners and AlpInvest all on the fundraising trail, 2020 could prove to be a record year for fundraising – a sign that capital raising figures, while useful, are but a snapshot in time of a given arbitrary period.

Still, one data point from the fundraising figures shines light on current buyer/seller dynamics. According to Greenhill data, going into 2020 the ratio of dry powder to LTM deal volume could be at a record low of between 1x and 1.2x. In other words, the market is only capitalised for just over one year’s worth of trades.

Pricing remains full – bids have come in between 90 and 105 percent of net asset value for deals on which advisory firm Triago has advised – but with a capital overhang, buyers can afford to be pickier. According to Mathieu Dréan, managing partner at Triago, buyers are picking their fights more selectively and being choosier about what to dedicate time to.

“Today, we’re not surprised when [buyers] say, ‘Actually, I’m not going to spend time on this deal,’” Dréan says, adding that the average buyer is probably bidding on around half as many deals as three years ago when they would bid on most of what was put up for sale.

Another data point that belies the sombre headline figures is the increase in fund sizes. Greenhill figures show that the top 18 biggest funds in market as of December were seeking on average 84 percent more capital than their predecessors – a sign LP appetite for the strategy is anything but waning.

Are you a buyer? What was your ratio of dealflow to bids over the last six months? Let us know: adam.l@peimedia.com or @adamtuyenle