Secondaries set for growth

The private equity secondaries investment market is expected to grow to $20bn by 2005, according to new research.

The secondary private equity market will grow six fold within five years, from $3bn in 2000 to $20bn by 2005, according to a research report published by AltAssets, the research arm of private equity advisor Almeida Capital.

The report predicts that at least 20 new investment specialists will be looking to enter the secondaries marketplace going forward, helping to turn private equity into a more liquid asset class. Whilst adding to the increasing commoditisation of private equity interests, the large number of new entries is also likely to trigger some consolidation: AltAssets expects a group of ten players, each with at least $1bn available for investment every year, to dominate the market by 2005.

The ongoing expansion of this once obscure segment of the private equity market is driven by a number of factors. To a significant extent the current interest in the market is a product of the recent boom in the primary market. According to AltAssets, the most valuable deal source for secondaries specialists will be strategic sales from large institutional investors, who will be 'churning their private equity portfolios to maximise their returns from the asset class.' Institutions looking to liquidise distressed private equity assets are also driving deal flow, as are corporates rightsizing their venture portfolios.

Around 25 per cent of all secondaries transactions will take place between limited partners directly, accounting for $5bn by 2005, says AltAssets.