2020 Secondary Market Overview
Category: Secondary Market Research Year: 2020
27 March 2020
Record year of activity and buoyant outlook at year-end sit in stark contrast to the rapidly evolving macro situation resulting from the pervasive global spread of COVID-19
Campbell Lutyens has published its annual report on the global secondaries market, providing insight on market dynamics, trends and factors that are shaping the asset class as well as an outlook for 2020. The report is based on proprietary data gathered from a survey sent to more than 100 of the largest and most active secondary participants globally.
The secondary market experienced a record year for activity in 2019 with approximately $85 billion in transaction value executed. Deal volume for the year was up 16% and the market recorded another milestone for closed deals.
We now expect transaction volume to stall at least until Q1 2020 reference date valuations are released in May, with the potential for this slowdown in activity to extend to September. However, assuming the situation is stabilized by Q4 2020, there will be a high volume of deal flow coming to market with the goal of closing before the end of the year.
While real time market movements now make predictions for 2020 challenging, near-term trends that we expect to continue to develop include a surge in structured transactions, a continued pick up in private credit secondaries and the establishment of systematic selling programs by asset management firms and pension funds.
Gerald Cooper
Partner & Head of US Secondaries
“Despite the challenging macro environment, the secondary market is very different than it was during the economic downturn, more than 10 years ago," said Gerald Cooper, Partner. "With significantly more capital and a greater level of sophistication among market participants, the long-term fundamentals of the asset class remain attractive.”
Key findings for 2019 include:
Significant demand for jumbo transactions
There were estimated to be at least 25 billion-dollar-plus transactions in 2019 compared to 13 in 2018, highlighting the market’s enhanced ability to absorb larger deals.
More young vintage funds sold
Most funds sold in 2019 by volume were post-2014 vintages. This trend is a result of LPs making space for new fund commitments as GPs are returning to market more quickly and with larger funds, creating potential allocation issues for investors.
Preferred equity and other structured solutions grew in popularity
Preferred equity continues to be the fastest growing strategy in secondaries, more than doubling from $3.7 billion of the market in 2018 to $7.8 billion in 2019.
Secondary buyers embrace single asset continuation funds
Approximately 54% of secondary buyers polled completed a single asset secondary transaction and those buyers, on average, completed eight such deals last year. Single asset deals grew from a small slice of the market to 21% of all GP-led transactions in 2019.
Greater use of deferred payments to bridge pricing gap
43% of secondary buyers surveyed used deferred payments in 2019 compared to 38% in 2018. Sellers have been flexible on payment terms as most are selling for portfolio management reasons as opposed to liquidity.