What’s stopping secondaries from entering a golden age?

With more market participants piling into secondaries, the world’s largest asset managers have found themselves fielding a growing number of questions from analysts in recent earnings calls. With all the talk from private market participants of the secondaries market being a bright spot in an otherwise uncertain industry, is it possible that secondaries has entered a golden age?

There has been no shortage of enthusiasm from some of the market’s largest alternatives managers on this very topic. For example, Alan Kirshenbaum, CFO of new secondaries entrant Blue Owl, said on the firm’s earnings call that if it can come in and effectively execute its strategy, its product will be “quite large”.

“The demand for capital is enormous, the supply of capital is de minimis, and whenever you’re in an environment where the demand is so much greater than the supply of capital, we think we can generate outsized returns for our investors,” he added.

The market has seen similar optimism from fellow recent entrants: TPG’s secondaries platform – which includes TPG Solutions and APAC-focused NewQuest – is generating greater dealflow globally. President Todd Sisitsky said on the firm’s own earnings call that secondaries is an “area that we think will be fruitful in the next few quarters for certain”.

Meanwhile, Apollo co-president James Zelter noted on the firm’s earnings call that investment into its S3 arm has “begun to pay off”.

However, it was a no from Hamilton Lane vice-chairman Erik Hirsch when he was asked whether secondaries is in a golden era. He alluded to the fact there have certainly been pockets of distressed selling in the LP-led market. Meanwhile, GP-led deals are getting done, but these transactions tend to involve trophy assets.

Although the market may reach a golden-age status, “as the markets continue to rebound, that seems increasingly unlikely”, he said.

Advisory reports pin first-half secondaries volume between $42 billion and $50 billion, which was largely buoyed by LP-led transactions. GP-led activity was subdued compared with the same period over prior years, reaching between $16 billion and $18 billion, the reports found.

While GP-led activity was muted in the first half, new entrants – such as those above – are expected to spur on further momentum for these transactions in future if they are able to raise the cash. (It’s worth noting that TPG GP Solutions held a $750 million close at the end of last quarter, as Secondaries Investor reported this week.)

Jefferies described a “flourishing universe” of GP-led capital as investors like alternative asset managers, buyout sponsors, family offices, pension plans and sovereign wealth funds build out dedicated strategies. “There exists an expanding universe of investors that can make $100-plus million commitments into concentrated multi-asset [and] single-asset deals,” it said in its report, noting these lead investors are increasingly looking for ways to make their mark and demonstrate their “angle” in these transactions.

Fundraising for new strategies like those with a GP-led focus is no easy task, market participants say. Whispers of other large asset managers exploring the idea of launching a continuation fund strategy are always being shared, though concrete plans have not always come to fruition.

While the secondaries market may not yet be in its golden age, it has certainly proven its worth with large-scale managers piling in.

– Article has been updated to correct Erik Hirsch’s title from vice-president to vice-chairman.