01 │ Highlights
Key themes in 2023
The global secondary market experienced an exceptional level of market activity and fundraising in 2023, as the second half of the year saw a robust rebound in transaction volume amid rising buyer sentiment. The market was supported by a stabilizing global economy, rising public markets, and a severely challenged exit environment which thrust secondary transactions to the forefront as an alternate route to liquidity. Despite a challenging fundraising environment for private markets in general, secondary strategies saw a record year for fundraising and overall dry powder availability, supported by a scaling of the largest players, both through their record fund sizes and pools of separately managed accounts for co-investments.
1
Transaction volume rebounded to hit $111 billion in 2023.
Secondary volumes reached the second largest amount on record driven by a strong second half of the year, with volumes growing from $40 billion in H1 2023 to $71 billion in H2 2023. Sensing a shift in sentiment, many sellers previously sitting on the sidelines relaunched processes leading to one of the biggest years on record for secondary transactions.
2
2023 saw a record year of $86 billion in secondaries fundraising.
The amount raised grew by almost 20% compared to 2022. This fundraising success, against the backdrop of an extremely challenging exit and distribution environment more broadly, supported a record $174 billion of dry powder available at the beginning of 2024.
3
Pricing rebounds in H2 2023 by nearly six percentage points.
On average, secondary discounts for LP-led transactions decreased from 22% at the end of 2022 to 16% at the end of 2023. Portfolios including the best assets priced in the low single-digit discount territory, perhaps marking the beginning of another bull run for the asset class.
4
Multi-asset continuation funds surged in 2023.
For the first time since 2019, multi-asset continuation fund transaction volume surpassed single-asset continuation fund activity, representing 47% and 41% of total GP-led deals, respectively. The need for distributions to paid-in capital (DPI) fueled a desire to complete larger transactions that would maximize liquidity for LPs.
5
Specialized strategies become a bigger part of the market.
Volumes for infrastructure secondaries grew to represent 12% of LP-led transactions by volume – nearly triple that of 2022 levels. At the same time, the secondary private credit market doubled, representing 4% of total volume. Together, infrastructure and credit accounted for 16% of secondary activity in 2023 compared to 6% in 2022. Other strategies outside of buyout have been flat or down over this same period.
1
Transaction volume rebounded to hit $111 billion in 2023.
Secondary volumes reached the second largest amount on record driven by a strong second half of the year, with volumes growing from $40 billion in H1 2023 to $71 billion in H2 2023. Sensing a shift in sentiment, many sellers previously sitting on the sidelines relaunched processes leading to one of the biggest years on record for secondary transactions.
2
2023 saw a record year of $86 billion in secondaries fundraising.
The amount raised grew by almost 20% compared to 2022. This fundraising success, against the backdrop of an extremely challenging exit and distribution environment more broadly, supported a record $174 billion of dry powder available at the beginning of 2024.
3
Pricing rebounds in H2 2023 by nearly six percentage points.
On average, secondary discounts for LP-led transactions decreased from 22% at the end of 2022 to 16% at the end of 2023. Portfolios including the best assets priced in the low single digit discount territory, perhaps marking the beginning of another bull run for the asset class.
4
Multi-asset continuation funds surged in 2023.
For the first time since 2019, multi-asset continuation fund transaction volume surpassed single asset continuation fund activity, representing 47% and 41% of total GP-led deals, respectively. The need for distributions on paid in capital (DPI) fueled a desire to complete larger transactions that would maximize liquidity for LPs.
5
Specialized strategies become a bigger part of the market.
Volumes for infrastructure secondaries grew to represent 12% of LP-led transactions by volume – nearly triple that of 2022 levels. At the same time, the secondary private credit market doubled, representing 4% of total volume. Together, infrastructure and credit accounted for 16% of secondary activity in 2023 compared to 6% in 2022. Other strategies outside of buyout have been flat or down over this same period.
Leading global secondary market trends
The future looks increasingly bright for the global secondaries market as fundamentals are in place for continued strong growth in the market's breadth, scope, and ability to innovate. Expectations for higher 2024 secondary transaction volume are driven by a positive shift in buyer sentiment, a growing number of secondary buyers entering the market, and an elevated level of sophistication amongst private market participants with respect to the benefits of the asset class.
1
Expect robust pricing for LP-leds.
Competitive tension has increased significantly in LP-led sell-side processes and, lower return hurdles and more capital chasing deals should lead to narrower discounts. Based on our survey results, 38% of secondary buyers expect LP-led pricing to get more expensive in 2024.
2
More specialist buyers for GP-led transactions.
Demand for continuation fund transactions has not managed to keep pace with supply. This is particularly true of single-asset continuation funds where concentration risk is an issue for traditional secondary buyers. Direct GPs are noticing this issue and raising capital to fill this void, a trend which we believe is in the very early stages but could ultimately have a material impact on the market.
3
Multi-asset continuation funds and strip sales used to drive DPI.
While the growth of single-asset continuation funds will be an ongoing trend in our market over the long-term, there is a pressing need in the near-term for GPs to generate meaningful liquidity, which may be most effectively delivered through the sale of multiple assets at one time. Well-curated portfolios of the best assets can be used to drive buyer engagement and attractive prices. We have seen the onset of this strategy in 2023 and expect it to continue until the M&A market is more conducive to exits.
4
Demand for venture and growth equity returns in 2024.
Venture and growth equity have been largely out of favor for 12–18 months. Prospective sellers who had sticker shock based on the magnitude of prevailing discounts are now acclimated to pricing or becoming anxious for liquidity. There were several surprisingly large transactions completed in 2023 and we anticipate this trend will continue due to a combination of a heightened need for liquidity from sellers and more buyers willing to take on risk.
5
Transaction volume will approach, and could exceed, the record high of $135 billion.
The top three largest secondary funds that closed in 2023 were at least 40% bigger than their predecessor vehicles. Secondary funds seeking capital in 2024 have equally significant ambitions. There are a host of new entrants that have not been a mainstay of the industry that are now seeking to deploy capital into the ecosystem, either directly or through managers. This phenomenon coupled with a persistent lack of regular way exits in private markets will propel volume very close to a record high. 54% of the buyers in our survey are aligned with our prognosis and expect the market to exceed $125 billion in 2024.
1
Expect robust pricing for LP-leds.
Competitive tension has increased significantly in LP-led sell-side processes and, lower return hurdles and more capital chasing deals should lead to narrower discounts. Based on our survey results, 38% of secondary buyers expect LP-led pricing to get more expensive in 2024.
2
More specialist buyers for GP-led transactions.
Demand for continuation fund transactions has not managed to keep pace with supply. This is particularly true of single-asset continuation funds where concentration risk is an issue for traditional secondary buyers. Direct GPs are noticing this issue and raising capital to fill this void, a trend which we believe is in the very early stages but could ultimately have a material impact on the market.
3
Multi-asset continuation funds and strip sales used to drive DPI.
While the growth of single-asset continuation funds will be an ongoing trend in our market over the long-term, there is a pressing need in the near-term for GPs to generate meaningful liquidity, which may be most effectively delivered through the sale of multiple assets at one time. Well-curated portfolios of the best assets can be used to drive buyer engagement and attractive prices. We have seen the onset of this strategy in 2023 and expect it to continue until the M&A market is more conducive to exits.
4
Demand for venture and growth equity returns in 2024.
Venture and growth equity have been largely out of favor for 12–18 months. Prospective sellers who had sticker shock based on the magnitude of prevailing discounts are now acclimated to pricing or becoming anxious for liquidity. There were several surprisingly large transactions completed in 2023 and we anticipate this trend will continue due to a combination of a heightened need for liquidity from sellers and more buyers willing to take on risk.
5
Transaction volume will approach, and could exceed, the record high of $135 billion.
The top three largest secondary funds that closed in 2023 were at least 40% bigger than their predecessor vehicles. Secondary funds seeking capital in 2024 have equally significant ambitions. There are a host of new entrants that have not been a mainstay of the industry that are now seeking to deploy capital into the ecosystem, either directly or through managers. This phenomenon coupled with a persistent lack of regular way exits in private markets will propel volume very close to a record high. 54% of the buyers in our survey are aligned with our prognosis and expect the market to exceed $125 billion in 2024.
Secondary transaction volume reached second highest level ever at $111 billion.
Annual secondary market volume
- Transaction volume reached $111 billion in 2023, a nearly 5% increase from 2022, with strong market activity in the second half making up for the weak start in the first half of the year.
- Dedicated secondary funds raised $86 billion in 2023 which, when added to existing dry powder and capital from non-dedicated secondary participants, brings total available dollars for deals as of Q1 2024 to $174 billion.
Secondary focused capital¹
- As at beginning of FY 2024.
- Does not include the impact of leverage.
Dedicated secondary funds raised a record amount of capital in 2023.
Historical secondary fundraising
- Despite a challenging fundraising environment across private markets, secondary funds raised a record high of $86 billion during 2023, a nearly 20% increase from the prior year, as the backdrop of liquidity concerns and attractive discounts proved to be alluring for investors seeking strong risk-adjusted returns coming out of 2022.
- Secondary fundraising increased 50% between 2021 and 2023, whereas for the wider private equity market it fell 29% demonstrating the resilience of secondary strategies¹.
- The largest buyers continued to dominate fundraising with the top six accounting for 59% of the capital raised in 2023.
- Secondary funds are targeting $98 billion in capital for 2024 with 83% of respondents expecting to fundraise this year.
- It’s worth noting that projected fundraising based on our survey for 2023 was $109 billion, about 27% above the amount of actual capital raised. While secondary funds are seeking committed capital of $98 billion, we estimate that the total will come in shy of this figure at a more modest $77 billion. This takes into consideration that, after a blockbuster 2023, there is less capital available from prospective LPs, and also builds in some haircut to projections which is consistent with prior years.
- Source: Preqin. Fundraising for all private equity funds except for secondary funds.
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