Almost 90% of funds that closed in the first half secured more capital than they had targeted. Last year, 65% of funds surpassed their goals, Preqin noted in its latest Secondary Market Updatereport. The Covid-19 pandemic has played a part in the record fundraising by creating a buyer’s market for private equity stakes. In a recent Preqin survey, 43% of respondents said they wanted to diversify their portfolios to counteract volatility.
Some mega funds completed capital raisings in the first half. They included Ardian ASF VIII, the largest secondary fund ever, with which secured $19bn of commitments. The Ardian fund pushed the average fund size globally to $4bn at the end of June, up from $1.04bn in 2019.
“Secondaries funds not only managed to stand out as a success story,” said Christopher Beales, a senior manager at Preqin. “They have repeatedly posted some of the highest performance figures of any private capital strategy. It’s no wonder, then, that they remain sought after among investors.”
Despite the market’s enthusiasm for fundraising, the pandemic has frozen primary deal activity. As the Wall Street Journalrecently reported, buyers and sellers are taking a prudent approach.
“The question will be whether the sector faces the same pressures as the wider private equity market: huge amounts of committed capital ballooning dry powder stores, and putting upwards pressure on pricing (or in this case net asset value),” Beales added. “Secondaries have succeeded thus far by correctly judging pricing, and too much competition may see that balance start to tilt.”
Investors’ enthusiasm for secondary funds is a break with history. The industry viewed secondary transactions as a way for weak investors to sell their positions in poorly performing funds, but this perception changed over time as investors came to see the funds as a way to diversify their portfolios.
Preqin said more huge secondary funds will raise capital in the second half of this year. As of the end of June, there were 73 such funds seeking a combined capital of $69bn.
Large fundraisers include Coller Capital’s International Partners VIII, which is nearing its target of $9bn, and AlpInvest Partners’ Secondaries Program VII and Goldman Sachs AIMS Private Equity’s Vintage Fund VIII, which are respectively seeking $8bn and $7bn.
Source: Private Equity News
