01
Highlights
Global secondary market trends
2023 is shaping up to be a roller-coaster year — H1 volumes reached a low of $40 billion, but our surveyed buyers’ expectations are for H2 to rebound to $70 billion. Strengthening economic conditions and improving public markets indicate that the U.S. economy may experience a softer landing or even avoid a much-predicted recession. Now with bid-ask spreads narrowing and investor confidence increasing, we think conditions are set for materially higher transaction volume, providing much-needed liquidity to LPs through LP-led and GP-led secondary transactions.
Key takeaways
1
Transaction volumes fell by 24% in H1 2023 compared to full year (FY) 2022.
The deal environment proved to be challenging in the first half of the year due to a dislocation in valuation expectations between buyers and sellers. This was consistent with the overall M&A market which was down significantly.
2
LP fund interest sales increased on a relative basis compared to FY 2022.
LP-led transaction dollar volumes represented 55% of total secondary volumes compared to 49% for FY 2022 as pricing for more diversified exposure has been attractive for buyers and persistent allocation pressures created a more acute need for LPs to trade out of illiquid assets.
3
GP-led transaction volumes were down materially compared to H2 2022.
On balance, buyers found better relative value in LP led transactions in H1 2023, leading to a shift in buyer demand and a higher bar for GP-led deals, with GP-led volumes down by about 36% from H2 2022 levels and only representing 37% of transaction volume versus 40% for FY 2022.
4
Discounts widened on LP-led transactions with a rebound expected in H2 2023.
The average pricing on LP-led transactions dipped in H1 2023 relative to FY 2022 with only 25% of transactions pricing at a 10% discount or better compared to 38% in FY 2022 and the percentage of deals pricing at worse than a 20% discount increasing from 9% in FY 2022 to 38% in H1 2023. Early indications in Q3 show narrowing discounts for the remainder of 2023 as perceived macroeconomic risk has abated.
5
Wider dispersion of pricing outcomes on GP-led transactions.
A lack of traditional exit opportunities in H1 2023 helped to facilitate greater flexibility on pricing for continuation fund transactions, as the number of transactions closing at worse than a 10% discount increased to 44% in H1 2023 from 20% in FY 2022.
6
Despite a slow start to the year, buyer market sentiment for H2 2023 is exceptionally high — the vast majority of our survey respondents expect year-end volumes of ~$110 billion.
Key drivers of this rebound are likely to include continued improvement in economic conditions and public markets, both of which are expected to help narrow bid-ask spreads and give investors conviction to put dedicated dry powder to work, which has reached over $130 billion (more than a 20% increase from year-end 2022).
Note: All data in this report covers the dates from January 1, 2023, through June 30, 2023 unless otherwise indicated
H1 2023 secondary market volume ($bn)¹
- $70bn expected H2 volume is a consensus based on surveyed buyers' forecasts
- Does not include leverage; as of June 30, 2023
Secondary focused capital
H1 2023 secondary market volume ($bn)¹
Secondary focused capital
- $70bn expected H2 volume is a consensus based on surveyed buyers' forecasts
- Does not include leverage; as of June 30, 2023
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