PE secondaries market set to soar with GP-led transactions, IPO boom

Pinal Nicum, Partner, Secondary Investments at Adams Street Partners

Deal activity in the private equity (PE) secondaries market has rebounded quicker than what was the case in the aftermath of the financial crisis a decade ago.

The trend gains steam as the market dislocation resulting from the COVID-19 outbreak has thrown up significant opportunities for investors in the secondaries market.

According to Pinal Nicum, partner in the secondary investments team at Adams Street Partners, dealmaking in the segment has picked up considerably in the last 2-3 months. Conversely, following the market crash in 2008, it took roughly 12-15 months for dealmaking to resume.

Adams Street, the global private equity firm headquartered in the US, has about $41 billion in assets under management, and has been in the secondaries market for over three decades.

The initial period of the global crisis gave rise to some “liquidity-driven situations,” Nicum told DealStreetAsia.

The deals on the table pick up as general partners (GPs) are increasingly reviewing or rebalancing their portfolios. “Certain funds were perhaps overexposed to sectors which were heavily impacted by national lockdowns, for example, traditional retail and travel,” he explained.

With the crisis dragging on, the nature of the opportunities has changed. “More recently, the transactions are less defensive in nature; GPs looking to manage duration profiles of mature funds by using secondary solutions, and LPs also starting to explore sales of funds where there could be longer duration or lower returns due to COVID-19,” Nicum said.

“Similar ‘tactical’ selling was a huge driver of the secondary market after the global financial crisis and we believe from our conversations with LPs it will once again generate significant opportunities for at least the next two to three years,” he added.

Nicum said that GP-led transactions will be a core driver of secondary market activity for several years to come.

“We are already seeing many GPs across the globe investigating how to use the secondary market to continue to drive liquidity in mature portfolios by, for example, using a continuation vehicle structure.”

The secondaries market is also set to get a boost from flourishing public listing markets, particularly in Greater China.

According to a DealStreetAsia research report, China and Hong Kong-based companies raised $13.7billion in initial public offerings in the first quarter of this year. In Shanghai and Shenzhen alone, 118 companies listed on the stock exchanges in the first six months of the year and raised $20 billion, more than double the amount in the same period last year.

“Clearly that potential for strong exit activity in funds is a positive when evaluating secondary transactions,” Nicum said.

Still, secondary market transactions in the first six months of this year are broadly estimated to have fallen by more than half, compared to the same period last year. The value of transactions in the global secondaries market hit an all-time high in 2019, recording more than $85 billion in terms of investments. That, in turn, was more than 10 per cent higher than the year before.

Nevertheless, fundraising for the market has been aggressive. According to data provider Preqin, as much as $44 billion was globally raised in the first half of this year, surpassing 2019’s full-year fundraising of $26 billion.

Adams Street is understood to be raising a global secondaries fund. The firm has declined to comment on its fundraising activities.

The global private equity firm is believed to be raising some $5 billion in various funds for direct investments and fund investing. Among the vehicles is an Asia-focused fund-of-funds, targeting buyout, venture capital and growth equity opportunities. Adams Street is raising up to $350 million for Asia Fund 2020, according to a presentation by the Ventura County Employees’ Retirement Association, a limited partner in Adams Street’s funds.

Last year, the firm raised about $740 million for its 2019 global fund; and more than $2 billion for its Global Secondary Fund 6 and Private Credit Fund I.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.