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Booming secondaries fundraising market starting to spread its geographic reach – Preqin

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Secondaries private equity fund managers have traditionally had a heavy focus on the North America market – but new fundraises are seeing the sector begin to spread its reach, the latest data from Preqin shows.

A still hefty 62% of secondaries fundraises are currently targeting North America according to Preqin’s Secondary Market Update for H1 2020, but that figure is down 11% compared to June 2019.

Instead, the number of funds focusing on Europe and Asia have increased by eight and five respectively, and the collective capital sought by funds targeting Asia has risen from $700m to $2.4bn.

Much of that increase comes from Shenzhen Capital Group’s debut secondaries fund, Preqin said, which is targeting $1.4bn.

Preqin said, “Asia and emerging markets are more unexplored territories for private equity secondaries – and even more so for real estate and infrastructure secondaries.

“Foundation Private Equity launched its first secondaries fund with a focus on the Asian market. KCLAVIS Asset Management and Meta Investment have co-launched a niche secondaries fund to purchase stakes in venture capital funds in South Korea.

“This suggests the beginnings of a branching away from typical secondaries strategies, a trend that is likely to continue into H2 2020 and beyond.”

Capital has continued to flood into secondaries funds amid the pandemic, Preqin said, with $44bn raised in H1 2020.

Secondaries funds continue to focus on private equity investments, which account for 89% of the funds in market, while real estate and infrastructure vehicles in the market are seeking $4.3bn and $3bn respectively.

As of June 2020, real estate and infrastructure secondaries funds in market make up only 10% of the total number, and all are managed by multi-strategy fund managers.

Notable funds include Partners Group’s Real Estate Opportunities 2019, targeting $3bn, and Landmark Partners’ Infrastructure II, targeting $1.5bn.

Preqin said, “To date, many secondaries specialists have remained tightly focused on their core area of expertise, but more firms are now exploring options away from private equity secondaries.

“The exception is Stafford Capital Partners, which is currently in market with its fourth infrastructure secondaries fund.

“Sector-specific issues are likely to lead to increased activity as portfolios are rebalanced.

“Real estate, in particular, is experiencing a divergence between segments, with retail and hospitality assets falling in value.

“Secondary assets, meaning low-quality or poorly located assets, and those with weak covenants or limited scope to respond to shifting customer demands, are underperforming, with rent collection levels falling in many markets.

“This adds pressure on returns, particularly for levered owners.”

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