Private Equity’s Secondary Market Sees Unprecedented Growth
As the global economy continues to navigate uncertain waters, the private equity industry is adapting by turning to the secondary market for funds. Last year, transaction volumes reached an all-time high, with investors and buyout bosses seeking ways to generate cash amidst a slowdown in dealmaking.
Ardian’s Record-Breaking Fundraise
Paris-based Ardian made headlines this week by raising a staggering $30 billion in the largest-ever secondary fund. This monumental achievement signals the industry’s confidence in the secondary market’s potential for growth. Ardian has already allocated half of the raised capital, demonstrating the firm’s commitment to investing in high-performing assets.
The Rise of Continuation Funds
Secondary managers like Ardian are increasingly investing in continuation funds, which allow buyout firms to hold onto assets beyond the original fund’s lifespan. This trend has seen a four-fold increase over the past five years, according to Bain & Company. Greg Ciesielski at HarbourVest notes, “There is a mega trend of private equity firms trying to hold on to their best assets for longer.”
Secondary Market Deal Volumes Soar
Last year, the secondary market saw a remarkable $150 billion in deal volumes, surpassing the previous record of $130 billion set in 2021. Imran Hameed, managing director at PJT Park Hill, attributes this growth to the increasing demand for liquidity.
Narrowing Expectations
Vladimir Colas, Co-Head of Secondaries & Primaries at Ardian, predicts that by 2025, there will be at least as many sellers bringing portfolios to market. He notes that the gap between sellers’ expectations and buyers’ offers is narrowing, making it an attractive time for transactions.
Secondary Fundraising Reaches New Heights
Despite a slight decrease from 2023’s record $92 billion, secondary fundraising last year still reached an impressive $56 billion, according to Preqin. Victoria Chernykh, an analyst at Preqin, believes that Ardian’s record haul, along with other managers’ ambitious fundraising targets, signals a busy year ahead.
Challenges and Opportunities
While dealmaking activity is on the rise, it still lags behind historical levels, and initial public offering markets remain challenging. Marion Cossin, head of the secondary advisory team at Lazard in Paris, notes that private equity funds have made few distributions in recent years, prompting limited partners to sell holdings on the secondary market to generate liquidity.
A Shift in Perception
Imran Hameed observes that private equity-led sales are no longer viewed as “exotic” or a last resort. However, as more cash flows into the secondary market, discounts have narrowed, reducing returns. Some investors are becoming increasingly cautious about investing in secondary funds due to fees and similar returns to traditional buyouts.
As the private equity industry continues to evolve, one thing is clear: the secondary market is poised for continued growth, driven by the need for liquidity and the desire to hold onto high-performing assets.
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