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PREQIN SECONDARY MARKET UPDATE

Q3 2017

alternative assets. intelligent data.

© Preqin Ltd. 2017 / www.preqin.com2

PREQIN SECONDARY MARKET UPDATE, Q3 2017

FOREWORD

Aggregate fundraising for secondaries funds in Q3 2017 totalled $5.4bn, bringing total fundraising for the year to date to $29bn, the same amount as the record for the whole of 2014. The quarter included a $2.7bn final close for Lexington Partners with Lexington

Middle Market Investors IV.

The secondaries fundraising market remains competitive: there are 44 funds in market seeking $31bn. Secondary fund managers seeking capital will be buoyed by the fact that 88% of secondaries funds closed in 2017 so far have reached or exceeded their target. The strong performance of secondaries vehicles relative to other strategies continues to underpin positive investor sentiment towards the strategy. Less than 2% of secondaries funds are currently delivering negative net IRRs, and the median net multiple for secondaries funds across all vintages is 1.47X, higher than the 1.37X average for all private capital funds.

This secondaries quarterly update also showcases the results of Preqin’s survey of secondary buyers in July 2017. Combined, the 32 survey respondents completed $7.0bn worth of transactions in H1 2017; their activity sheds light on the wider trends in the secondary market for the first half of the year and buyers’ expectations for the second half.

The survey results show that the secondary market is in good health: the desire for liquidity and portfolio management, coupled with a strong pricing environment, drove activity in H1 2017. This activity is being supplemented by increasing opportunities from GP-led deals. Sixty-four percent of respondents expect to spend more in the second half of the year than the first, and a third of respondents anticipate aggregate secondaries transactions will value at $40bn or more for full-year 2017.

We hope you find this report useful, and welcome any feedback you may have. For more information, please visit www.preqin.com or contact [email protected].

SECONDARY MARKET MONITOR

Preqin’s Secondary Market Monitor is the industry’s leading source of intelligence on the private equity, private real estate, infrastructure and private debt secondary fund markets. Get online access to information on potential buyers, sellers and intermediaries, secondaries fundraising, secondary transactions and pricing.

Get in touch today to arrange a demo of Secondary Market Monitor: : [email protected] | : www.preqin.com/smm

All rights reserved. The entire contents of Preqin Secondary Market Update, Q3 2017 are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Secondary Market Update, Q3 2017 is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent financial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Secondary Market Update, Q3 2017. While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to confirm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Secondary Market Update, Q3 2017 are accurate, reliable, up-to-date or complete. Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Secondary Market Update, Q3 2017 or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

p3 Fundraising

p4 Funds in Market

p5 Sellers

p7 Transactions

p8 Pricing

p9 Performance

p10 Outlook


3

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FUNDRAISING

In Q3 2017, six secondaries funds held a final close, fewer than in Q2 2017,

when nine vehicles held a final close (Fig. 1). More capital was raised in Q3 2017 compared to Q2 2017, however, with $5.4bn raised in total (compared to $3.9bn). This brings the total amount raised for 2017 YTD to $29bn, the same amount as the record in 2014, with Q4 still to come.

Q3 2017 saw three vehicles close on more than $1bn. The largest secondaries fund to close in the quarter was Lexington Partner’s Lexington Middle Market Investors IV, which raised a total of $2.7bn. The vehicle purchases secondary stakes in growth capital and small and mid-market buyout funds globally, targeting younger vehicles with a higher level of undrawn capital. The quarter also saw a $1.1bn close for Intermediate Capital Group’s Strategic Secondaries II Fund, a vehicle solely focused on restructuring opportunities, re-affirming the viability of

this particular strategy in the secondaries market.

The vast majority (88%) of secondaries funds closed in 2017 YTD managed to raise at least their target size, with 82% exceeding their target size on final closing

(Fig. 3). With the amount raised so far in 2017, secondaries dry powder has grown to $94bn in September 2017, higher than the previous peak of $77bn in December 2016 (Fig. 4).

6

3 2

13

2

79

15

8 9

6

11

3

6

1

8 76

97

10 9

64.1

5.1 5.9 5.3

2.0 2.8

6.6

10.9

2.1

11.9

2.5

12.6

1.1

12.3

0.5

10.2

6.1

12.3

4.16.1

19.8

3.95.4

0

5

10

15

20

25

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2012 2013 2014 2015 2016 2017

No. of Funds Closed Aggregate Capital Raised ($bn)Source: Preqin Secondary Market Monitor

201223 Funds$20.4bn

Fig. 1: Global Quarterly Secondaries Fundraising, Q1 2012 - Q3 2017

7% 9% 5% 7% 5%

27%9%

10%

36%

24%

12%

13%

10%

7%

14%

6%

40%

32% 20%

7%

43%

35%

13%

50% 55%43%

14%

47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016 Q3 2017

125% or More

101-124%

100%

50-99%

Under 50%

Source: Preqin Secondary Market Monitor

Prop

ortio

n of

Tar

get S

ize

Achi

eved

Fig. 3: Secondaries Funds Closed by Proportion of Target Size Achieved, 2012 - Q3 2017

Fig. 2: Five Largest Secondaries Funds Closed in Q3 2017

Fund Firm Final Size (mn) Type Geographic Focus

Lexington Middle Market Investors IV Lexington Partners 2,700 USD Private Equity Secondaries US

NB Credit Opportunities Fund Neuberger Berman 1,100 USD Private Equity Secondaries Europe

Strategic Secondaries II Fund Intermediate Capital Group 1,100 USD Private Equity Secondaries US

Vintage Investment Partners X Vintage Investment Partners 215 USD Private Equity Secondaries US

Alpha CEE Opportunity IV Alpha Associates 150 EUR Private Equity Secondaries EuropeSource: Preqin Secondary Market Monitor

Date of Final Close

23.537.3 36.4

51.641.5 44.9

53.2 53.4

74.386.0

0.9

0.8 2.5

2.3

1.7 1.6

3.5 2.9

2.7

4.4

0.2 0.2

0.2 0.1

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0

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Dec

-08

Dec

-09

Dec

-10

Dec

-11

Dec

-12

Dec

-13

Dec

-14

Dec

-15

Dec

-16

Sep-

17

Private Equity Real Estate Infrastructure


Dry

Pow

der (

$bn)

Fig. 4: Secondaries Dry Powder by Fund Type, 2008 - 2017

201333 Funds$22.2bn

Year of Final Close

201434 Funds$29.1bn

201516 Funds$21.7bn

201627 Funds$28.3bn

2017 YTD25 Funds$29.1bn



FUNDS IN MARKET

As of the start of Q4 2017, there are 44 secondaries vehicles in market

seeking aggregate capital of $31bn (Fig. 5). Although this is the same number of funds as was in the market at the start of the year, less is being sought in aggregate following the closing of some larger vehicles during the course of the year. Of the secondaries funds currently raising capital, 61% have held an interim close, with $13bn already secured by these vehicles.

As shown in Fig. 6, 29 vehicles (66% of the secondaries funds seeking capital) have a primary focus on North America. The vast majority of capital being sought (73%) is also targeted by North America-focused vehicles. There are three Asia-focused secondaries vehicles in market, seeking just half a billion dollars in capital in total.

Of the secondaries funds currently seeking capital, there are five dedicated real estate secondaries which are targeting

$5.6bn in aggregate (Fig. 7). There are also two infrastructure vehicles on the road: Ardian’s ASF VII Infrastructure, which is seeking $1.5bn, and Stafford Capital Partner’s Stafford Infrastructure Secondaries Fund II, which aims to raise $276mn.

The largest secondaries vehicle currently in market is Goldman Sachs AIMS Private Equity’s Vintage Fund VIII, which is seeking $5bn (Fig. 8). This vehicle has already held several interim closes and has secured $4.5bn towards its target.

37

52

23.4

5.6

1.8

0

5

10

15

20

25

30

35

40

Private Equity Real Estate Infrastructure

No. of FundsRaising

Aggregate CapitalTargeted ($bn)


Fig. 7: Secondaries Funds in Market by Fund Type

29

12

3

22.5

7.8

0.50

5

10

15

20

25

30

North America Europe Asia

No. of FundsRaising

Aggregate CapitalTargeted ($bn)


Fig. 6: Secondaries Funds in Market by Geographic Focus

26

21

32

28

22

32

44 44

20.118.4

26.0 27.0

17.0

28.0

37.5

30.8

0

5

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20

25

30

35

40

45

50

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Oct-17

No. of Funds Raising Aggregate Capital Targeted ($bn)Source: Preqin Secondary Market Monitor

Fig. 5: Secondaries Funds in Market over Time, 2011 - 2017

Fig. 8: Five Largest Secondaries Funds in Market (As at October 2017)

Fund Firm Firm Location Target Size ($mn) Fund Type

Vintage Fund VII Goldman Sachs AIMS Private Equity US 5,000 Private Equity Secondaries

Landmark Equity Partners XVI Landmark Partners US 4,000 Private Equity Secondaries

Crown Global Secondaries IV LGT Capital Partners Switzerland 2,500 Private Equity Secondaries

Landmark Real Estate Fund VIII Landmark Partners US 2,000 Real Estate Secondaries

Partners Group Real Estate Secondary 2017 Partners Group Switzerland 2,000 Real Estate SecondariesSource: Preqin Secondary Market Monitor

Geographic Focus Fund Type


5


SELLERS

Preqin’s survey of secondary market buyers asked respondents what they

believed to be the main motivations of investors that sold to them on the secondary market in H1 2017. As shown in Fig. 9, liquidity (the desire to realize capital from mature funds) and portfolio management continue to be the main factors that drive investors to utilize the secondary market to sell, as they were when we surveyed buyers in January 2017 on their activity in H2 2016.

Respondents were also asked to indicate which firm types they bought interests from on the secondary market in H1 2017.

As was the case in January 2017, family offices were the main supplier of deal flow, with 64% of respondents indicating they had bought from this group of investors in H1 2017 (Fig. 10).

Activity in the secondary market remains predominantly in North America, with 81% of respondents indicating they had bought interests from investors based there in H1 2017 (Fig. 11). There was a drop in deal flow emanating from Europe, with 59% of respondents indicating they had bought from a seller based there in H1 2017, compared to 74% in H2 2016.

Private equity secondaries remain the most liquid, with over half of respondents completing deals involving small and mid-market buyout funds, as well as venture capital funds, in H1 2017. The market continues to cater to the needs of investors in other private capital funds, with respondents also having purchased natural resources, private debt, real estate and infrastructure fund interests in H1 2017.

Looking at the vintages of funds being sold on the secondary market, based on our survey of secondary buyers, a substantial proportion (70%) indicated they had been sold funds of vintages 2010 or later, i.e.

69%74%

54%

29% 29%

70%63%

26%19%

15%

Liqu

idity

Port

folio

Man

agem

ent

Chan

ge in

Stra

tegy

Fund

Perf

orm

ance

Regu

latio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

H2 2016

H1 2017

Source: Preqin Secondary Fund Manager Survey, January - July 2017

Fig. 9: Sellers’ Main Motivations for Selling Fund Interests on the Secondary Market According to Buyers, H2 2016 vs. H1 2017

80%74%

29%

11% 14% 11%

81%

59%

26%

7% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Nor

th A

mer

ica

Euro

pe

Asi

a

Aus

tral

asia

MEN

A

Latin

Am

eric

a

Sub-

Saha

ran

Afr

ica

H2 2016

H1 2017


Fig. 11: Location of Sellers from Which Buyers Bought Fund Interests on the Secondary Market, H2 2016 vs. H1 2017

59%

76%

49% 49%43%

19% 16% 24%

11%

57% 57% 53%

37% 33%

17% 17% 17%

7%

Smal

l Buy

out

Mid

-Mar

ket

Buyo

ut

Vent

ure

Capi

tal

Gro

wth

Larg

e Bu

yout

Real

Est

ate

Priv

ate

Deb

t

Nat

ural

Res

ourc

es/

Ener

gy

Infr

astr

uctu

re

0%

10%

20%

30%

40%

50%

60%

70%

80%

H2 2016

H1 2017


Fig. 12: Funds Purchased on the Secondary Market by Type, H2 2016 vs. H1 2017

Fund TypeSeller Location

Prop

ortio

n of

Res

pond

ents

Prop

ortio

n of

Res

pond

ents

Prop

ortio

n of

Res

pond

ents

69%

29%37% 40%

14%

31%

14%

34%

20%

64%

39%

21%18% 18%

14%11% 11%

7% 7%

Fam

ily O

ffice

Priv

ate

Sect

orPe

nsio

n Fu

ndPu

blic

Pen

sion

Fund

Bank

/In

vest

men

t Ban

k

Fund

of F

unds

Endo

wm

ent P

lan

Sove

reig

nW

ealth

Fun

d

Reta

il In

vest

or

Foun

datio

n

Insu

ranc

eCo

mpa

ny

0%

10%

20%

30%

40%

50%

60%

70%

80%

H2 2016

H1 2017


Fig. 10: Firm Types from Which Buyers Bought Fund Interests on the Secondary Market, H2 2016 vs. H1 2017

Firm Type

Prop

ortio

n of

Res

pond

ents



44%48%

52% 52%

44%

30%

70%

2004 andOlder

2005 2006 2007 2008 2009 2010Onwards

0%

10%

20%

30%

40%

50%

60%

70%

80%

Source: Preqin Secondary Fund Manager Survey, July 2017

Fig. 13: Funds Sold to Buyers on the Secondary Market in H1 2017 by Vintage Year

Prop

ortio

n of

Fun

ds

Vintage Year

13%

12%

12%

8%8%8%

6%

6%

5%

22%

Public Pension Fund

Private Sector Pension Fund

PE Fund of Funds Manager

Insurance Company

Asset Manager

Family Office

Endowment Plan

Foundation

Bank/Investment Bank

Other


Fig. 14: Expected Secondary Market Sellers in the Next 12-24 Months by Firm Type

39%42%

10% 9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

North America Europe Asia Rest of World


Fig. 15: Expected Secondary Market Sellers in the Next 12-24 Months by Location

60%54%

43%

29%

19% 19%

9% 6% 5%

0%

10%

20%

30%

40%

50%

60%

70%

Buyo

ut

Priv

ate

Deb

t

Vent

ure

Capi

tal

Real

Est

ate

Fund

of F

unds

Gro

wth

Infr

astr

uctu

re

Seco

ndar

ies

Nat

ural

Res

ourc

es

Fig. 16: Fund Types to Be Sold by Expected Secondary Market Sellers in the Next 12-24 Months

Fund TypeSource: Preqin Secondary Market Monitor

funds that are seven years old or younger (Fig. 13). This indicates the availability of quality deal flow to secondary buyers as younger funds have more potential upside relative to more mature ones. Mature funds, however, are still being purchased – over half of respondents bought 2006 and 2007 vintage funds in H1 2017.

MAKE-UP OF FUTURE SELLERSPreqin’s researchers maintain regular contact with investors to find out their plans for the secondary market. As at the end of Q3 2017, Preqin has identified 787

firms that have indicated a willingness to sell fund interests on the secondary market in the next 12-24 months. This is more than the 754 investors that indicated the same at the end of Q2 2017. As can be seen in Fig. 14, these potential sellers represent a diverse group of investors including public and private sector pension funds and private equity fund of funds managers.

These expected sellers are concentrated in Europe and North America (42% and 39% respectively, Fig. 15). There have also been expected sellers identified in Asia (10%)

and Rest of World (9%), which includes investors based in Australia, Brazil and the United Arab Emirates. These firms will potentially bring a variety of funds to the market. The majority (60%) will potentially sell buyout funds, and over half (54%) are expected to sell private debt funds (Fig. 16).

Seller Location

Prop

ortio

n of

Sel

lers

Prop

ortio

n of

Sel

lers


7


As well as the sample of secondaries transactions completed that are

shown in Fig. 18, Q3 2017 also saw the completion of a GP-led secondary transaction in the infrastructure space: the Netherlands-based asset manager APG - All Pensions Group purchased the interests in the 2008 vintage vehicle DIF Infrastructure II, providing an exit for the vehicle’s investors. Such deals are increasingly being completed in the secondary market. Respondents to Preqin’s secondary fund manager survey in July 2017 were asked about their involvement in such deals in H1 2017. As can be seen in Fig. 17, 70% of buyers indicated they had completed a direct secondary transaction broadly, up from 57% in H2 2016. Half of respondents had specifically completed the subset of a direct secondary that is a fund restructuring.

When asked about their overall spending in H1 2017 compared to H2 2016, 74% of respondents indicated they had spent the

same amount or more (Fig. 19). The second half of the year is historically more active than the first, so this suggests a particularly active H1 2017, and bodes well for the rest of the year.

Fifty-six percent of respondents indicated that they relied on secondary intermediaries for at least some part of their completed deal flow (Fig. 20), highlighting their continued importance in the market.

57%

49%

38%

27%

14%

70%

50%

30%

20%15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

DirectSecondary

FundRestructuring

Tender Offer StapledSecondary

GP Spin-out

H2 2016

H1 2017


Fig. 17: Buyers Completing Non-Traditional Secondary Transactions, H2 2016 vs. H1 2017

TRANSACTIONS

Fig. 18: Sample Secondary Transactions Completed in Q3 2017

Seller Type Location Buyer Fund Sold

Hana Asset Management Asset Manager Asia NongHyup Bank Equitix Fund IV

Massachusetts Mutual Life Insurance Company Insurance Company North America Committed Advisors EQT V

Strenta Investment Management Inc. Family Office North America Lexington Partners BC European Cap IX

Norinchukin Bank Bank Asia Strategic Partners Fund Solutions Charterhouse Capital Partners VII

Kresge Foundation Foundation North America Adams Street Partners Phoenix Equity Partners 2010 Fund


29%

10%

35%

16%

10%

SignificantlyIncreased

SlightlyIncreased

No Change SlightlyDecreased

SignificantlyDecreased

0%

5%

10%

15%

20%

25%

30%

35%

40%

Fig. 19: Change in Total Value of Secondary Transactions Completed by Buyers from H2 2016 to H1 2017


43%

10%

23% 23%

None Up to 25% 26-50% 51-75% 76-100%0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Fig. 20: Proportion of Total Value of Secondary Transactions Completed in H1 2017 Sourced from Intermediaries


Prop

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Res

pond

ents

Prop

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n of

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pond

ents

Prop

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n of

Res

pond

ents

Proportion of Total Value Sourced from Intermediaries



The continued strong fundraising (and the subsequent growth in dry powder)

observed in 2016, which has continued through to 2017, has created a very competitive environment for deals. When asked about the change in competition between H2 2016 and H1 2017, 60% of managers surveyed in July 2017 observed similar levels of competition for deals, while 40% observed more, including 17% that experienced significantly more (Fig. 21).

This sentiment is reflected in managers’ views on pricing in H1 2017 compared to H2 2016. Respondents largely did not observe any softening in pricing between the periods across fund types (Fig. 22). The

exception to this is venture capital funds, for which just 6% of respondents indicated a significant decrease in pricing. Indeed, particularly with buyout fund types, a significant proportion of respondents observed increased pricing, including 57% of respondents that believe pricing is higher for large buyout funds.

Respondents also indicated which range of pricing they paid, on average, for the various fund types (Fig. 23). Pricing is highest for buyout funds: 43% of respondents paid 95-99% of NAV on average for large buyout funds purchased in H1 2017, while a quarter paid within that range on average for mid-market buyout funds.

The use of debt, particularly in large portfolio acquisitions, is felt to have had an impact on pricing. We sought to investigate how widespread the use of debt is by secondaries managers in our survey. As shown in Fig. 24, the majority (73%) of respondents indicated they were not using debt at all. This is perhaps a surprising result as anecdotally the use of financing facilities, especially by secondaries funds, is believed to be prevalent, and may reflect a reticence to disclose this. A few (20%) did indicate they had a fund finance facility in place, while 7% have such a facility in place in addition to using debt in portfolio acquisitions.

PRICING

17%

23%

60%

0%

10%

20%

30%

40%

50%

60%

70%

SignificantlyMore

Slightly More No Change Slightly Less SignificantlyLess

Fig. 21: Change in Level of Competition for Deals from H2 2016 to H1 2017 According to Secondary Fund Managers


6%

52% 53% 43%54%

61%86% 83%

71%83%

43% 47% 57%46% 17%

14% 17%29%

17%5%

17%

0%10%20%30%40%50%60%70%80%90%

100%

Smal

l Buy

out

Mid

-Mar

ket B

uyou

t

Larg

e Bu

yout

Gro

wth

Vent

ure

Capi

tal

Real

Est

ate

Infr

astr

uctu

re

Priv

ate

Deb

t

Ener

gy

Significantly Higher

Slightly Higher

No Change

Slightly Lower

Significantly Lower

Fig. 22: Change in Secondary Market Pricing from H2 2016 to H1 2017 According to Fund Managers by Fund Type


20%

7%

73%

Via Fund Financing

Via AcquisitionFinancing

Via Fund andAcquisition Financing

Do Not Use Debt

Fig. 24: Use of Debt by Secondary Fund Managers


Prop

ortio

n of

Res

pond

ents

Prop

ortio

n of

Res

pond

ents

42%

17% 14%

40%58%

40%60%

17%

17% 14%

20%

25%40%

50%

20%

100%

17%

25%14%

8%17%

8%20%

8%20%

50%

20%8%

25%

43%

20%14%8%

0%10%20%30%40%50%60%70%80%90%

100%

Smal

l Buy

out

Mid

-Mar

ket

Buyo

ut

Larg

e Bu

yout

Gro

wth

Vent

ure

Capi

tal

Real

Est

ate

Infra

stru

ctur

e

Priv

ate

Deb

t

Ener

gy

Above Par

Par

95-99%

90-94%

85-89%

80-84%

<80%

Fig. 23: Average Price Paid (As a % of NAV) for Secondaries Funds Purchased in H1 2017 by Fund Type


Prop

ortio

n of

Res

pond

ents

Fund Type

Fund Type


9


PERFORMANCE

As seen in Fig. 25, only two vintages (2009 and 2013) for secondaries

funds in the last 10 years currently have negative minimum net IRRs. Overall, only four secondaries vehicles, which make up just 2% of secondaries funds for which Preqin has performance data, currently have a negative net IRR. This is a smaller proportion than for buyout funds, for instance, where 9% of funds have negative net IRRs. This can illustrate how secondaries are a relatively safe investment.

Secondaries funds typically have shorter holding periods and, when it comes to funds purchased at discounts, provide attractive IRRs relative to other asset classes. This is illustrated in Fig. 26, which shows that the median IRR across secondaries vehicles exceeds the median IRR for all private capital across all vintages except 2007. Intuitively, as secondaries investments are made in funds at a later stage, when underlying investments have experienced some growth, secondaries funds should deliver lower net multiples

compared to primary investment strategies. Fig. 27, however, shows that in the last 10 years (except vintage 2007), secondaries funds have higher median net multiples than the average for all private capital funds.

When asked about expected net multiples for deals completed in H1 2017, respondents to our secondary fund manager survey expected a minimum of 1.3-1.5X (Fig. 28). More than a third anticipate net multiples of 1.9X or greater.

-10%

0%

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40%

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60%

70%

1998

-200

2

2003

-200

6

2007

2008

2009

2010

2011

2012

2013

2014

MaximumNet IRR

MedianNet IRR

MinimumNet IRR

Fig. 25: Secondaries Funds - Maximum, Median and Minimum Net IRRs by Vintage Year


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1998

-200

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2003

-200

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2007

2008

2009

2010

2011

2012

2013

2014

Secondaries

All PrivateCapital

Fig. 26: Median Net IRRs by Vintage Year: Secondaries vs. Private Capital Funds

Vintage YearSource: Preqin Secondary Market Monitor

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

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1998

-200

2

2003

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2007

2008

2009

2010

2011

2012

2013

2014

2015

Secondaries

All PrivateCapital

Fig. 27: Secondaries Funds - Median Net Multiples by Vintage Year

Vintage YearSource: Preqin Secondary Market Monitor

32% 32%

36%

1.0 or Less 1.0-1.2 1.3-1.5 1.6-1.8 1.9 or Greater0%

5%

10%

15%

20%

25%

30%

35%

40%

Fig. 28: Secondary Fund Managers’ Expected Net Multiple from Deals Completed in H1 2017

Expected Net Multiple (X)Source: Preqin Secondary Fund Manager Survey, July 2017

Vintage Year

Net

IRR

sinc

e In

cept

ion

Net

IRR

sinc

e In

cept

ion

Med

ian

Net

Mul

tiple

(X)

Prop

ortio

n of

Res

pond

ents



OUTLOOK

The majority (64%) of respondents to Preqin’s July survey of fund managers

anticipate they will expend more in secondaries transactions in the second half of the year than they did in the first half (Fig. 29). Given that H1 2017 was widely observed to be relatively active, this bodes well for overall secondary transaction activity for the year. Estimates for the total value of secondary transactions have adjusted to this new reality: in January 2017, 41% of respondents anticipated a minimum of $35bn worth of secondary deals for full-year 2017 (Fig. 30). As at July 2017, this has grown to 76% of respondents. Thirty-three percent expect that aggregate transaction value will be $40bn or higher, which would be a record.

Respondents were asked to qualify these estimates by indicating which factors might influence secondary activity in H2 2017. The most commonly cited factor (by 39% of respondents)

was the expected activity levels which hinge on public market performance (Fig. 31). Continued positive public market performance translates to better valuations for privately held assets and

thus improved performance, making them more attractive. Other factors cited were continued strong pricing, which attracts potential sellers, as well as macroeconomic and political stability.

27%

37%

27%

10%

SignificantlyHigher

Slightly Higher No Change Slightly Lower SignificantlyLower

0%

5%

10%

15%

20%

25%

30%

35%

40%


Fig. 29: Fund Managers’ Expected Total Value of Secondary Transactions Completed in H2 2017 Compared to H1 2017

27%

32%

16%

11%14%

7%

17%

43%

30%

3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Less than$30bn

$30-34bn $35-39bn $40-44bn $45bn orMore

Jan-17

Jul-17

Fig. 30: Fund Managers’ Estimated Total Secondary Market Value for Full-Year 2017


39%

17%

9% 9% 9% 9%4% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Publ

ic M

arke

tPe

rform

ance

Pric

ing

Mac

roec

onom

icFa

ctor

s

Regu

latio

n

Polit

ical

Envi

ronm

ent

Seco

ndar

ies D

ryPo

wde

r

Avai

labi

lity

ofLe

vera

ge

Port

folio

Man

agem

ent N

eeds

Fig. 31: Fund Manager Views on Which Factors Will Influence Secondary Transaction Volume in H2 2017


Prop

ortio

n of

Res

pond

ents

Prop

ortio

n of

Res

pond

ents

Prop

ortio

n of

Res

pond

ents

Estimated Market Value

Identify potential buyers and sellers of fund interests

Benchmark performance of secondaries funds

Analyze trends in secondaries fundraising and transactions

Obtain indicative pricing for funds of interest

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Register for demo access to find out how Preqin’s Secondary Market Monitor can help your business:

www.preqin.com/smm

PREQIN

Alternative Assets Data & Intelligence

Preqin provides information, products and services to fund managers, investors, consultants and service providers across six main areas:

■ Investors – Allocations, Strategies/Plans and Current Portfolios ■ Fund Managers – Funds, Strategies and Track Records ■ Funds – Fundraising, Performance and Terms & Conditions ■ Deals/Exits – Portfolio Companies, Participants and Financials ■ Service Providers – Services Offered and Current Clients ■ Industry Contacts – Direct Contact Details for Industry Professionals

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PREQINSECONDARY MARKET UPDATE

Q3 2017


Download - PREQIN SECONDARY MARKET UPDATE … · 4 Preqin Ltd. 2017 / PREQIN SECONDARY MARKET UPDATE, Q3 2017 FUNDS IN MARKET A s of the start of Q4 2017, there are 44 secondaries vehicles in

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