The private equity secondary market is on a remarkable upward trajectory, with sales expected to soar to around $150 billion by 2024, as highlighted in a report by the Financial Times last October. This surge is fueled by several factors that are solidifying secondaries’ role as a significant force in private market activities, even as speculation grows about whether the market is peaking. Our latest report, created in collaboration with Private Equity Wire, delves into both the growth and complexities the PE secondary market faces. Strong confidence among fund managers and allocators points to a continuation of this growth, supported by structural and macroeconomic patterns that seem set to endure. A notable 83% of managers surveyed anticipate a rise in secondaries volumes over the coming six to twelve months.
A major factor driving the expansion of secondaries is their flexibility throughout various market cycles. GP-led and LP-led transactions have become more sophisticated, turning them into effective tools for maneuvering through intricate financial situations. From our survey, 36% noted that in the past six to twelve months, their secondaries transactions were predominantly GP-led. As these procedures gain momentum, they help market participants unlock value, especially in today’s high-interest-rate climate. This adaptability is highlighted by the vast number of unsold assets—28,000 globally on private equity buyout books, valued at $3.2 trillion, as reported by Bain & Company—resulting in a significant backlog that demands time to clear.
Economic conditions have a crucial impact as well. High interest rates are a key factor driving secondary volumes, resulting in a bottleneck of assets waiting for distribution or sale. Even as interest rates start to level off and the M&A sector shows some recovery, a backlog of companies awaiting sales or IPOs is likely to sustain the high levels of activity. This situation delays distributions back to LPs, thus keeping the demand for secondary transactions high as a liquidity option.
Additional growth drivers include broad macroeconomic concerns, such as recession fears, geopolitical instability, and inflation. These uncertainties push sellers toward secondaries as a way to hedge risks and generate liquidity. Sellers’ behavior trends bolster this, with many foreseeing continuous market volatility and taking proactive steps to adjust portfolios or fulfill liquidity needs.
In essence, the intertwining of structural, economic, and behavioral factors indicates that private market secondaries are poised for ongoing growth, providing resilience and opportunity even amid changing market landscapes.
For a deeper understanding of the factors accelerating the growth in the secondaries market, delve into the full report.
