Secondaries Special: Meet the buyers

The secondaries market has come a long way in a relatively short space of time. Since a handful of pioneers carved out this specialist niche back in the early 1990s, the industry has grown to such an extent that the merry band of early prospectors now looks more like a gold rush.

The secondaries market shows no sign of slowing down. Last year secondaries investors agreed a record $23 billion of deals; this year’s first half figure of $14 billion suggests the industry is on course to surpass that amount. Tom Anthofer, managing partner of direct secondaries specialist Cipio Partners, estimates the market has grown by 40 percent year on year since its inception, based on deal data collected by his firm.

Bernhard Engelien, Cogent

That’s partly because there are more buyers in the market, according to Bernhard Engelien, a managing director at secondaries advisory group Cogent Partners. “You used to have just a small group of specialists, but funds of funds then started to enter the market five years ago. Following the credit crisis, we’ve also seen the emergence of non-traditional buyers like sovereign wealth funds, pension funds and large family offices,” Engelien said.

Relatively new LPs are also using secondaries to increase their exposure to private equity – particularly in Asia. Coller Capital’s latest Private Equity Barometer report, released in June, revealed that more than two thirds of Asian LPs were intending to purchase assets on the secondaries market over the next two years. That compared with about 35 percent of European investors, and 30 percent of LPs in North America. 

There are plenty of opportunities out there. “In the US, [buyers] are taking advantage of deal flow driven by large pension funds attempting to rebalance their portfolios, while in Europe, regulations are driving many financial institutions to offload assets,” Engelien said.


The market is still dominated by a small group of experienced players, who are able to raise sizeable pools of capital. Lexington Partners, for example, set a new benchmark when it closed its seventh secondaries vehicle on $7 billion in July, surpassing its target of $5 billion. It even supplemented that with a side-car vehicle, the $650 million Lexington Middle Market Investors II fund, which will invest in ‘young’ private equity fund interests. Lexington says it has invested some $14 billion since 1994, across more than 290 deals.

UK-based Coller Capital , founded by Jeremy Coller in 1990, has become another secondaries heavyweight. Last year, for example, it paid £332 million for a portfolio of 40 private equity investments owned by Lloyds Banking Group through its Bank of Scotland Integrated Finance subsidiary.

Then there’s Switzerland-headquartered alternatives manager Partners Group, which has invested more than $7 billion in secondaries since its first $250 million deal in 1998 (a record at the time). Partners Group launched its latest secondaries fund earlier this year with a €2 billion target, according to research group PE Connect, part of PEI.
Other long-standing players include Swiss group LGT Capital Partners, which has been involved in the secondaries market since 1998 and acquired more than 440 underlying fund interests; Paul Capital, which began investing in the secondaries market in 1991 and has since made more than 175 investments; and French firm Fondinvest, active in this area since 1996.

Investment banks have also tapped this growing market: Credit Suisse, for example, has developed in-house expertise through its Strategic Partners unit.

Smaller firms have prospered too. San Francisco-based Industry Ventures recently closed its sixth fund, garnering $400 million in commitments. And French group Unigestion’s managing director Hanspeter Bader told PEI that its €190 million Secondary Opportunity Fund II, which only closed in June, is already 50 percent invested.


As well as firms that specialise in trading fund interests, the secondaries market has evolved to include firms that acquire whole portfolios of companies or individual investments, the so-called ‘secondary direct’ players.

Cipio Partners, which specialises in early and late-stage venture capital and mid-market private equity assets, is one such example – although managing partner Anthofer says deal sizes are getting smaller.  “We used to do deals where we’d buy 20 or more companies in a portfolio, but there aren’t many transactions of that size in the current market. That downward trend will continue because major investment groups, be they corporates, banks or asset managers, have now consolidated their holdings,” he said.

Banks are proving a fruitful source of deals, both for large firms like AXA Private Equity (see boxout),  and for smaller firms like Vision Capital, which in July acquired a portfolio of investments from Italy-based Banco Popolare for €365 million.

Another source of dealflow is when GPs are looking to return capital ahead of a forthcoming fundraising, according to Anthofer. “Some GPs, particularly early-stage investors, are keen to take chips off the table and lock-in returns when a portfolio company has done well and there is interest in secondary shares. Other GPs are out of capital and need to raise additional funds so as to have dry powder for portfolio companies that need more money in the future,” he said.

However, secondaries specialists need to be choosy about what they buy, according to Daniel Green, an investment director at Greenpark Capital. “Portfolio composition is important. We have limits as to how much capital we can deploy to any individual underlying fund, or with any one manager”. On the other hand, he points out, secondaries investing “tends to deliver a natural sectoral diversification – so overexposure to a single industry is rarely a primary risk factor. It’s more important to consider exposures geographically and by investment strategy.”