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2013 secondaries volume pegged at $28bn

Setter Capital reached its estimate by extrapolating from the stated activity of 70 large buyers.

Private equity secondary market activity totalled $27.9 billion in 2013, according to Canadian advisory firm Setter Capital.

This figure included $23.1 billion in fund purchases – predominantly of buyout funds – and $4.8 billion in direct investments. Including real estate, hedge and infrastructure funds too, total secondary fund activity has been about $36 billion this year, the firm said, making it “perhaps the most active year ever for the secondary market”.

Setter reached its estimates via a survey of 115 large secondary market buyers, 70 of whom agreed to participate. Volume was defined as total exposure purchased – to include net asset value plus unfunded commitments – over the course of the year. Based on their responses, Setter extrapolated a total figure for all of those groups surveyed.

However, it also pointed out that the total market is likely to be even larger, since this figure does not include “more than 1,000 opportunistic and non-traditional buyers”. For instance, there were no sovereign wealth funds or endowments included in the survey, and just a single pension plan.

Respondents to the survey completed 740 deals in 2013, with an average size of $28 million. Large buyers, defined as those that put more than $1 billion to work, accounted for just over half of the total volume, while “medium buyers”, defined as those who put at least $100 million to work, accounted for a further 41 percent. Pensions and banks were by far the most active sellers.

Around a third of respondents said volume was “significantly higher” in 2013 than it was in 2012. Nearly all respondents expected volumes to be similar or even higher in the first half of 2012, with about a quarter saying they expected to buy a broader range of fund interests next year.

Only around 57 percent of all the reported transactions were intermediated, while this figure was substantially higher at the smaller end of the market. This makes it very difficult to come up with accurate totals for the market as a whole, since an individual intermediary will only have full visibility on a relatively small proportion of the total deals done.

However, Setter believes more and more deals will be intermediated in the future, “both in response to the entrance of new agents and as sellers try to stay on top of the ever growing buyer universe.”