The top 30 secondaries managers over the last five years have raised an eyewatering $190 billion in that period.
But the figure should come as no surprise to anyone keeping a keen eye on the market. In the 12 months since we published our debut SI 30 ranking – which tracks capital raised in the last five years – several records have been broken. For private equity secondaries alone, fundraising hit a first-half high this year of$24 billion, bolstered by at least seven final closes above $1 billion.
This year, again, the market leader is clear: Ardian. The firm broke the infrastructure secondaries record by raising $1.7 billion for ASF VII Infrastructure, and in the last five years it has amassed almost double the amount of capital as second-placed Strategic Partners.
“Secondaries has come of age,” says Benoît Verbrugghe, Ardian’s US head. Major institutional investors are using the market, which has long shed its ‘distressed sellers only’ image. “There is still plenty to come from the secondaries market, particularly as the private equity industry grows.”
At least nine of the 30 firms that made our ranking this year are fundraising, a sign LP appetite for secondaries is yet to reach a peak.
Five join our ranking for the first time: Intermediate Capital Group, Montauk TriGuard, Aberdeen Asset Management, Altamar Private Equity and Stafford Capital Partners. Many of these firms focus on niche strategies such as restructurings and real assets.
“A lot of secondaries funds are trying their best to differentiate themselves in different parts of the market,” says Mark McDonald, global head of secondaries advisory at Credit Suisse’s private fund group. “Mega-funds are writing $1 billion-plus cheques to buy very large LP portfolios, and you’ve got small niche funds trying to do smaller, quirkier, off-market direct secondaries and GP-led deals.”
DRY AS A BONE
Dry powder estimates range from $68 billion to $83 billion, according to advisory firms Evercore and Greenhill Cogent respectively, which means market participants are having to push innovation and make creative deals. These include HarbourVest Partners’ take-private of SVG Capital, Ardian’s $2.5 billion stapled deal with Abu Dhabi’s Mubadala Capital and BC Partners’ stapled process to aid fundraising for its 10th flagship buyout fund.
“Increasingly you’re seeing transactions happen with these higher quality GPs with good assets and bigger portfolios,” says David Atterbury, managing director at HarbourVest Partners. His firm is one of the 12 GPs in the SI 30 that held final closes in the 12 months to June, amassing $4.8 billion for its Dover Street IX fund.
“There’s a big market out there in terms of funds that are in year eight, nine or 10 of their lives, and there is demand from investors into secondaries funds to access that market.”
Taking that into account, and with primary dry powder at $1.5 trillion, the peak for secondaries fundraising could be some way off.
SI 30 METHODOLOGY
How we determine the 2017 ranking
The SI 30 ranking is based on the amount of equity capital raised for dedicated secondaries pools of capital over a roughly five-year period. This year, the window spans from 1 January 2012 to 30 June 2017.
We give highest priority to information that we receive from or confirm with the fund managers themselves. When secondaries firms confirm details, we seek to “trust but verify”.
Some details simply cannot be verified by us and in these cases we defer to the honour system. In order to encourage co-operation from secondaries fund managers that might make the SI 30, we do not disclose which firms have aided us on background and which have not. In the event we do not receive confirmation of details from the firms themselves, we seek to corroborate information using firms’ websites, press releases, news reports and limited partner disclosures, among other resources.
Secondaries capital: For the purpose of the Si 30, the definition of secondaries capital is: capital raised for a dedicated programme of investing directly into the secondaries market. This includes equity capital for diversified private equity, real estate, infrastructure, buyout, growth equity, venture capital and turnaround or control-oriented distressed secondaries investment opportunities. We also count any portion of a fund of funds earmarked specifically for secondaries investments.
Capital raised: Capital definitively committed to a secondaries direct investment programme. In the case of a fundraising, it means the fund has had a final or official interim close after 1 January 2012. We count the full amount of a fund if it has a close after this date. We count the full amount of an interim close (a real close, not a ‘soft-circle’) that has occurred, even if no official announcement has been made. We also count capital raised through other means, such as co-investment vehicles.
What does NOT count as secondaries?
Direct private funds: We do not count capital raised for funds that invest directly into the primary markets, whether this be for private equity, real estate or infrastructure.
Hedge funds: We do not count hedge funds, meaning funds that target liquid securities or trading strategies.
Opportunistic investors: Some large entities have the ability to carry out secondaries deals on an opportunistic basis. We do not count these groups because there is no hard capital allocation to their direct-investment programmes.
Debt, including mezzanine debt funds: We only count equity investment funds for this ranking. All debt funds, including mezzanine debt funds, will not be counted towards the ranking.
PIPE investments: The Si 30 counts private capital raised for secondaries investments. Therefore, we do not count capital raised for PIPE deals.
Deal-by-deal: We do not count capital raised on a deal-by-deal basis to be invested into secondaries opportunities.