Secondaries Digest July 2024

H1 2024 Secondary Market Review

The private equity secondary market has hit the ground running in 2024, with transaction volumes in the first half of the year setting a new all-time high. Let's break down the key trends driving this spike in activity and what they mean for LPs and the broader industry.

Record-breaking H1: Secondaries kick up a gear

The numbers say it all: secondary market volumes soared to $72bn in H1 2024, according to Evercore data (full report available here), setting a new record for first-half performance. Jefferies reports (full report available here) a slightly more conservative but still impressive figure of $68bn, representing a 58% increase from the same period last year. This isn't just a statistic – it represents a fundamental shift in how investors approach portfolio management and liquidity.

LP-led market dominates

The LP-led market is at the heart of this deal flurry. Jefferies data show that LP-led deals accounted for $40bn of the total volume, a remarkable 60% year-over-year increase. What's particularly exciting is the influx of new participants – Jefferies reports that 45% of sellers in H1 2024 were first-time entrants to the secondary market, up from 39% in full-year 2023.

Why the surge?

There are several reasons behind this surge:

• Overallocation pressure: Jefferies notes that many investors find themselves overallocated to private equity, some by as much as 40%.
• Distribution drought: According to Matthew Wesley at Jefferies, this marks the third consecutive six-month period where capital calls outpaced distributions - a first in recent PE history.
• Buy-side demand: Evercore points to a rising appetite for buyout, credit, and infrastructure portfolios as a catalyst for increasing prices.

Pricing trends: Good news for sellers

Sellers are in an incredibly strong position right now. Jefferies reports that the average price for buyout fund positions has climbed to 94% of NAV, a 200 basis point increase from H2 2023. Overall, aggregate pricing for LP transactions across all private capital strategies increased by 300 basis points from the second half of 2023, reaching 88% of NAV. This uptick isn't just good news for sellers – it's a sign of a healthy, dynamic market.

Looking ahead: H2 2024 and beyond

The outlook for the second half of 2024 is decidedly bullish. Jefferies projects that total annual volume could surpass $140bn, with an additional $40bn in LP-led transactions expected before year's end. This is perfectly achievable considering that higher transaction volumes typically follow in the second half of any year.

Evercore echoes this sentiment, noting that robust fundraising activity has resulted in a better capitalized secondary market than ever before. New pools of capital have emerged, with multi-strategy alternative investment firms raising secondary capital.

Despite record-setting deal volumes in H1 2024, secondary dry powder continues to swell. Total committed, undeployed capital reached an unprecedented $189bn in the first half. This is a continuation of a long-term trend: secondary dry powder has grown at a 14% compound annual growth rate (CAGR) from 2013 to 2023. The persistent accumulation of capital, even in the face of record deployment, speaks volumes about investor confidence in secondaries. As buyers continue their fundraising efforts, this substantial war chest will further fuel transaction volumes in H2, driven by a pressing need to put this capital to work.

Palico's perspective

At Palico, we're thrilled to see just how kinetic secondaries are right now. All the fundamentals have fallen into place and it’s looking like 2024 will set a new annual high for deal volume.

We’ve been extremely busy in recent months and have some exciting news to share with you shortly. In the meantime, if you haven’t already downloaded our whitepaper ‘Unlocking the Power of Private Capital Secondary Markets: A Guide for First-Time Sellers’, it’s essential reading and can be found here.

Our digital secondary marketplace is uniquely positioned to help investors in smaller private capital fund stakes access liquidity from their portfolios. With traditional avenues for liquidity remaining constrained and LPs taking a more active approach to portfolio management, more investors are embracing secondaries. Whether you're a seasoned player or considering your first foray into the secondary market, we’re here to support you. It's an exciting time to be in this space and we can help you make the most of it.

Before you go

We hope this newsletter served as a handy recap of what’s been playing out in secondaries, private equity, and the wider macro context. Palico aims to provide you with further relevant doses of PE insights while doing what we do best: matching buyers with sellers on our secondary marketplace. If you are active or curious about the secondary market, we invite you to register for our email newsletter where you can see deal flow on our marketplace.

Do you want to get in touch directly to talk about how we can help you sell your fund stakes digitally? Contact our team: [email protected]

No time for emails and such? Book a meeting.?