06 │ LP-led transaction activity analysis
Pensions represent more than 50% of sell-side volume for two years running.
Type of sellers
- There is a deep backlog of potential sellers due to persistent overallocation, particularly amongst pension funds. While selling activity for this segment of the market was flat YoY, much of this deal flow came to market in H2 2023 as pricing improved and drew out more opportunistic sellers.
- A drop off in distributions has forced many family offices to tap the secondary market for liquidity as selling from this investor type more than doubled.
- Fund of Funds represented most of the selling from asset management firms. These LPs are particularly sensitive to a drop-off in distributions given the structural limitations of their fund life and carried interest structures. As such, the market witnessed a meaningful spike in 2023 activity due to a lack of regular way exits from sponsors.
- Selling from sovereign wealth funds was down this year as many groups reluctantly utilized the secondary market in 2022 and have right-sized their portfolios to withstand the difficult market in 2023.
Type of sellers in 2023 and 2022¹
- Split by transaction value (purchase price plus unfunded) per respondent.
Significant increase in private credit and infrastructure secondary volume, which now represent a meaningful percentage of transaction activity.
Strategy of funds sold
- Secondary buyers found it difficult to underwrite value in 2023 due to a lack of robust trading comparables and volatile public markets. This resulted in many buyers flocking to high-quality assets and familiar sponsors. As such, mega buyout and middle market buyout funds continued to drive demand amongst secondary buyers. Additionally, most transactions required some level of “cherry picking” to generate prices that would satisfy seller expectations, which tended to be a list of the best names in the buyout space.
- The volume of infrastructure funds being sold as a percentage of the overall market tripled from 2022. Discounts on infrastructure funds were light relative to other strategies and proved to be a more palatable way for LPs to reduce allocation issues in their private market portfolios.
- Private credit sales as a percentage of total volume doubled from 2022. The market has seen a steady rise in supply as more buyers have emerged with attractive solutions and appropriate hurdle return rates. Sellers are using the market for portfolio management, risk mitigation, and to free up capital for new commitments.
- Venture and growth equity demand continues to be muted, but we expect more capital to focus on this space in the coming year as the best assets begin to bubble to the surface and demonstrate resiliency.
Strategy of funds sold in 2023 and 2022¹
- Split by transaction value (purchase price plus unfunded) per respondent.
Please contact us should you have any queries or wish to find out more about Campbell Lutyens’ secondary advisory practice. In addition click here for important information regarding the report.
