Public and corporate pensions have been the most active sellers in a blistering market for the stakes of private funds already held by investors.
Secondary volume (defined in this case as the total value of transactions) during the first half of 2024 was up a record 50.2 percent to $67.71 billion, significantly higher than the $45.09 billion transacted in the first half of last year, according to a report by Setter Capital.
There were 1,068 transactions in the first half of the year, up 23.3 percent from the 866 during the same period last year. The average deal size was $63.42 million, 21.8 percent higher. For the report, Setter surveyed 88 of the 132 most active and regular buyers in the secondary market. The group represented 86.8 percent of the total market volume, making it one of the most exhaustive analyses of the secondary market, which includes stakes in all types of alternative funds such as private equity, real estate, infrastructure, hedge funds, and even timber.
Secondaries had a big 2023 and asset managers expect 2024 to be even busier — a forecast that is coming to fruition. The winners and losers are hard to define, since investors might simultaneously be selling some of their stakes at a discount and be invested in funds that specifically buy secondaries. Some institutional investors with a lot of cash have been able to avoid selling assets on the secondary market. Meanwhile, the market has also lost its stigma, buyers are capitalizing on the accounting advantages of secondaries, and asset managers are raising huge multibillion dollar secondary funds.
Limited-partner-led secondaries totaled $38.05 billion in the first six months of the year, up 35.2 percent from $28.14 billion in the same period last year, and one group led the charge. Pension funds accounted for 33.1 percent of the total volume of secondary sales through the first half of 2024, making it the investor group with the biggest share of the volume. Insurance companies accounted for 13.7 percent, up from 8.5 percent in the prior year.
Survey respondents who were buyers also said they expected pension funds to continue to be the biggest sellers, ultimately accounting for 42.8 percent of anticipated transaction volume in the latter half of 2024.
Buyers in the market will be eager to hear that volume will keep increasing. Secondary deals led by limited partners were priced on average at a 12.8 percent discount and 31.6 percent of all sales involved structuring or cash deferral. Buyers expect NAV valuations to increase 3.1 percent and the pace of distributions to increase about 4 percent in the second half of the year, according to Setter.
Pension funds are hardly the only sellers in the market though. Asset management firms across strategies — buyout, venture and fund-of-funds — accounted for 29.5 percent of volume.
Looking ahead, 2024 volume is expected to reach $131.24 billion, a 19.5 percent year-over-year increase and a new yearly record. Those forecasted are also causing buyers to add employees. They plan to increase their headcount by 5.61 percent, according to Setter.