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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 info@preqin.com.

    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: : info@preqin.com | : 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

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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).

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    2012 2013 2014 2015 2016 2017

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

    2012 23 Funds $20.4bn

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

    7% 9% 5% 7% 5%

    27% 9%

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    2012 2013 2014 2015 2016 Q3 2017

    125% or More

    101-124%

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    50-99%

    Under 50%

    Source: Preqin Secondary Market Monitor

    Pr op

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    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 Europe Source: Preqin Secondary Market Monitor

    Date of Final Close

    23.5 37.3 36.4

    51.6 41.5 44.9

    53.2 53.4

    74.3 86.0

    0.9

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    Private Equity Real Estate Infrastructure

    Source: Preqin Secondary Market Monitor

    D ry

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

    2013 33 Funds $22.2bn

    Year of Final Close

    2014 34 Funds $29.1bn

    2015 16 Funds $21.7bn

    2016 27 Funds $28.3bn

    2017 YTD 25 Funds $29.1bn

  • © Preqin Ltd. 2017 / www.preqin.com4

    PREQIN SECONDARY MARKET UPDATE, Q3 2017

    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

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