Secondaries: An upward curve

What does the future look like for the secondaries market? Well, according to a group of investors gathered at a New York steakhouse recently, it’s as rosy as a medium-rare prime fillet.

For the past nine years Michael Bego, a partner at New York-based secondary firm Willowridge Partners, has hosted an annual informal gathering of the largest buyers in the secondary market. Just four people attended the first event; this year it was apparently packed with more than 85 professionals from over 50 of the world’s largest secondary funds.

This year Toronto-based secondaries advisor Setter Capital, which has been sponsoring the event for the past four years, also asked attendees to take part in ‘The Setter Volume Challenge’, calling on them to predict full-year secondaries market volume for 2014, 2015 and 2020.

The average of participants’ estimates for 2014 was $35.6 billion – which would represent a considerable leap from the 2013 estimate of $27.5 billion by Cogent Partners at the start of this year (Setter’s estimate was similar). Cogent’s mid-year analysis, released in July, also suggested that transaction volume totalled around $16 billion for the first half of the year, making a full-year prediction in the low-to-mid 30s seem like a fairly safe bet.

Most of those present were expecting more of the same in 2015, with an average estimated volume of $36.1 billion (although one optimistic attendee predicted it would reach $50 billion). But for 2020, the average estimate jumped to $46 billion – helped in part by one participant sticking their neck out and predicting volume would top $95 billion.

Some attendees, however, were clearly less convinced. The lowest prediction for 2014 was a modest increase to $29.1 billion, slinking back down to $24.7 billion in 2015 – more or less on a par with 2013 volume, which has been widely pegged at about $25 billion – and falling even further to $24.4 billion in 2020.

For now, though, the optimists seem to be in the ascendancy. As of 30 September there were 37 secondaries funds in market, targeting a combined $31.08 billion, according to PEI’s Research and Analytics division.