Secondary deal volume hit $14bn in H1 2011

Public pensions’ and financial institutions’ divestitures have fuelled secondary market activity, according to Cogent Partners.

The first six months of 2011 were the busiest “of any year in secondary market history”, according to secondaries broker and advisor Cogent Partners.

Transaction volume during the first half of 2011 was estimated to have reached $14 billion, the firm’s semi-annual pricing report found. Last year, transaction volume for all of 2010 hit record levels of around $20 billion to $23 billion, according to estimates from numerous market participants. Many believe 2011 is on track to top 2010’s records.

Looking into the pipeline for the second half of 2011 and considering the level of buy-side capital dedicated to this market, we expect secondary volume to remain high.

Todd Miller

Public pensions and financial institutions selling assets and fund interests accounted for more than 60 percent of the volume in the first half of 2011, resulting in numerous large portfolio transactions worth $750 million or more as well as exiting of “tail end” positions, Cogent said in a statement.

In examining more than $3.5 billion-worth of funds marketed during the period, the firm found that discounts continued to narrow for stakes in sought-after buyout funds, with high bids averaging 91.6 percent of net asset value (NAV).  In general, pricing has continued to rise over the past two years (bid prices averaged 39.6 percent in the first half of 2009), with the market in aggregate commanding simple average high first round bids of 84.5 percent of NAV during the first half of 2011. That figure included a number of smaller “tail-end” transactions priced at larger discounts to NAV, Cogent noted.

“Secondary pricing remained relatively robust over a period when the public equity markets demonstrated volatility, NAVs were written up, and supply reached historic levels. This serves as a testament to the confidence investors have placed in the market for these assets,” Todd Miller, managing director at Cogent, said in a statement. “Looking into the pipeline for the second half of 2011 and considering the level of buy-side capital dedicated to this market, we expect secondary volume to remain high.”

The September issue of Private Equity International includes an in-depth report on the secondaries market.