Private Equity Observations – Golden age of secondaries?

The impact of these events has caused many LPs to reassess their private equity portfolios as liquidity has evaporated, NAVs have declined, and the sharp decline in public equity markets have rendered many institutional portfolios materially over-allocated to private equity. These conditions have led more investors to consider using the secondary market to solve liquidity and asset allocation issues which has led to an unprecedented number of opportunities for buyers in the secondary market. At PCM, for example, we have experienced close to a 400 per cent increase in our average quarterly deal volume since the fourth quarter of 2007.

This favourable environment has not gone unnoticed. As we meet with LPs, prospective investors and consultants globally to discuss conditions in the private equity market, we have heard expressions of considerable interest in the secondary market and are frequently asked whether we are in or approaching an unprecedented investment environment for secondaries. While our immediate reaction to this question is “Yes”, we think the answer is a little more complex and nuanced.

In this edition of our PE Observations, we examine the current environment for the secondary market, considering deal volume, pricing and the competitive landscape and conclude that it is indeed a very promising time for secondaries but that the anticipated tidal wave of secondary volume may take longer to play out than widely expected.

Read: Private Equity Observations – Golden age of secondaries?

Permal Capital Management (PCM), a registered investment advisor, specializes in managing diversified private equity fund of funds through commitments to primary investments (PPEH series), secondary market purchases (PPEO series) and direct investments. In addition, PCM has experience customizing separate account portfolios for a number of large LPs. PCM’s clients include public pension plans, corporate pension plans, foundations, endowments and high net worth individuals. As the autonomous private equity arm of the Permal Group, PCM launched its first primary fund in 1994 and its first secondary fund in 2002. For more information, go to www.permalcapital.com.