Growing Trends In Private Equity: Secondary Market Investing

By Antonella Puca, CFA, CIPM

Once seen primarily as a safe haven during times of distress, the private equity secondary market has grown rapidly over the past decade to become an active platform for investors to build portfolios of private investments, achieve diversification, and provide liquidity and rebalancing flexibility to sellers in a cost-efficient way.

According to a recent survey by Prequin, secondary transactions in private capital in 2017 totaled approximately $60 billion. Thirty-five funds that specialize in private secondary market investments — secondaries — closed in 2017, raising a combined $40 billion. Portfolio management and liquidity remain the main factors in the decision to use the secondary market to sell, with a large proportion of the deals coming from pension funds and fund of fund managers.

As of the start of Q2 2018, the average median net IRR for secondaries across all vintages was estimated at 15.8%. Secondaries are seeking an aggregate of $30 billion in new investments.

Brett Hickey, founder and CEO of Star Mountain Capital, discussed his perspective on the opportunities that the secondary market may offer to investors that are interested in increasing their private investment allocations. Star Mountain Capital is a specialized asset management firm focused on direct investments, fund investments, and secondary transactions in the US lower middle market.

Hickey will be speaking on a panel, “Secondaries, Co-investments and Fund of Funds,” at the 7th Annual Private Equity US Forum, which will be held on 9–10 May 2018 in New York City.

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Disclaimer: This does not constitute an offer to sell or a solicitation of an offer to purchase interests in any investment product.