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March 17, 2015 at 01:08 PM
A majority of private equity secondaries managers will deploy more capital this year than in 2014, when both fundraising and transaction volume set records, according to a new study from alternatives data provider Preqin.
Preqin reported that 27 vehicles in 2014 raised $29 billion to buy investor commitments in other private equity funds, up from $22 billion the year before.
Secondaries transaction volume will likely reach an all-time high this year, following last year’s estimated $42 billion of purchases, Preqin said.
The study of more than 50 managers dedicated to secondaries assets showed that 67 percent planned to deploy more capital in 2015 that they did last year, and 27 percent said they would invest a similar amount.
Preqin noted that the secondary market is awash in capital, and this is influencing prices. Survey respondents said the average price paid for buyout funds on the secondary market was 90 percent of net asset value.
This year, 45 percent of secondaries managers expected to pay more for buyout funds, while 48 percent expected to pay the same.
Despite the strong pricing, Preqin said, buyers appeared to be both willing and able to pay more, as the strong environment for exits and distributions makes buyout funds in particular attractive.
The report said higher prices raised a concern about lower returns, and anecdotal evidence suggested secondaries buyers were increasingly turning to leverage to improve returns.
Last year, research showed, only 5 percent of respondents used debt to fund an acquisition. This year is different.
Thirty-four percent of respondents said they expected debt use to increase in 2015, and 66 percent predicted it would remain the same.
Last year, single fund purchases were the most common transaction type, completed by 77 percent of study respondents.
