UBS: quarter of buyers lower target returns

Drivers include increasing competition and record high dry powder, according to a report by the Swiss bank obtained by PEI.

Nearly a quarter of secondaries buyers have lowered their return expectations in the past year, according to a survey conducted by UBS Private Funds Group and obtained by Private Equity International.

The UBS 2017 Secondary Market Survey and Outlook found that 23 percent of survey participants either moderately lowered —21 percent — or significantly lowered — 2 percent — their target returns.

Three quarters of respondents did not change expectations while only 2 percent said that their target returns are moderately higher compared to a year ago.

The most common return target range in 2016 for LP transactions was 15 percent to 17.4 percent, which 31 percent of respondents picked, while two years ago, he most common return target range for LP transactions was 17.5 percent to 19.9 percent, selected by 34 percent of respondents.

Overall, the majority of respondents, or 51 percent, expect returns for limited partnership transactions below 17.5 percent, up from only 22 percent of respondents in UBS’S survey two years ago.

Some of the drivers behind lower anticipated returns include an increase in dedicated secondaries dry powder, which hit a record at $71 billion including leverage, as well as competition among buyers becoming more aggressive, according to the report.

“The competitive market conditions in 2016 continued to put pressure on target returns,” UBS noted.