Kim Watson’s Post

In Bain’s recent 2024 private equity report, one section asks the question, “Have Secondaries Reached a Tipping Point?” The short answer to the question is “No.” The more complete answer is that the secondary market is still evolving and is expected to continue its growth and relevance in private markets. One key reason highlighted is the increased use of Continuation Vehicles (“CVs”) by sponsors who wish to hold their best performing assets. “A secondary fund presents an alternative by stepping in with a continuation vehicle that allows a sponsor to sell off part of a company but maintain control and continue to realize the upside.” This point echoes Upwelling’s previous research report on CVs, which found that CVs outperformed similar vintage years and rank in the top quartile using both IRR and TVPI measurements using Pitchbook benchmarks as of Q3 2023. While several recent headlines have reported large multi-billion-dollar capital raises for secondary funds, the current market is still significantly undercapitalized with much more room to develop. Upwelling Research: https://lnkd.in/e22C2duF

Private Thoughts from my Desk……………#22 We just published our annual Global Private Equity Report, and this year we call attention to one of the smallest – but most dynamic – corners of this industry…… Secondaries. Secondaries is a catchall term these days for all kind of “liquidity solutions”. Most of the capital is deployed in either traditional LP-led secondaries or GP-led continuation vehicles, which have surged in recent years to account for around half of Secondaries transaction volume today. But there are also strip sales, NAV-based lending, preferred equity solutions, etc. The industry has gotten quite creative! I mentioned that Secondaries is a smaller market………… so why care? The fact that Secondaries is small is a big reason why people should care! To give a sense of scale, with global Secondaries transaction volume of around $120B annually, the market provides only ~1% liquidity for the ~$20T AUM alternatives industry. By comparison, the US public equity markets turn over more than $200B in assets daily. Of course, most alternatives strategies are inherently illiquid. Investors can’t expect to get liquidity with the same ease as public markets. But is there a reasonable place between the current 1% private markets liquidity and public equities for investors to cash out when they need or want to……..? Demand for Secondaries would suggest that the market could indeed be much bigger. LPs feeling the current ‘liquidity squeeze’ or proactively rebalancing their portfolios are increasingly selling stakes. GPs looking to hold onto their best assets while providing LPs liquidity (and securing some DPI) are driving demand for continuation vehicles– 2024 is poised to be the biggest year ever for these transactions. And, as more private wealth comes into alternatives, investors are finding Secondaries are a great way to gain exposure. Secondary funds offer diversification, an accelerated J curve, and an attractive risk/return profile. In fact, Secondaries is the only alternatives asset class where even the bottom quartile delivers a positive return (see the chart below). Read about Secondaries and more in Bain & Company’s 2024 Global Private Equity Report here https://lnkd.in/ejheN_sf. #privateequity #privatemarkets #privatethoughtsfrommydesk

Private Thoughts from my Desk……………#22 We just published our annual Global Private Equity Report, and this year we call attention to one of the smallest – but most dynamic – corners of this industry…… Secondaries. Secondaries is a catchall term these days for all kind of “liquidity solutions”. Most of the capital is deployed in either traditional LP-led secondaries or GP-led continuation vehicles, which have surged in recent years to account for around half of Secondaries transaction volume today. But there are also strip sales, NAV-based lending, preferred equity solutions, etc. The industry has gotten quite creative! I mentioned that Secondaries is a smaller market………… so why care? The fact that Secondaries is small is a big reason why people should care! To give a sense of scale, with global Secondaries transaction volume of around $120B annually, the market provides only ~1% liquidity for the ~$20T AUM alternatives industry. By comparison, the US public equity markets turn over more than $200B in assets daily. Of course, most alternatives strategies are inherently illiquid. Investors can’t expect to get liquidity with the same ease as public markets. But is there a reasonable place between the current 1% private markets liquidity and public equities for investors to cash out when they need or want to……..? Demand for Secondaries would suggest that the market could indeed be much bigger. LPs feeling the current ‘liquidity squeeze’ or proactively rebalancing their portfolios are increasingly selling stakes. GPs looking to hold onto their best assets while providing LPs liquidity (and securing some DPI) are driving demand for continuation vehicles– 2024 is poised to be the biggest year ever for these transactions. And, as more private wealth comes into alternatives, investors are finding Secondaries are a great way to gain exposure. Secondary funds offer diversification, an accelerated J curve, and an attractive risk/return profile. In fact, Secondaries is the only alternatives asset class where even the bottom quartile delivers a positive return (see the chart below). Read about Secondaries and more in Bain & Company’s 2024 Global Private Equity Report here https://lnkd.in/ejheN_sf. #privateequity #privatemarkets #privatethoughtsfrommydesk

Private Thoughts from my Desk……………#22 We just published our annual Global Private Equity Report, and this year we call attention to one of the smallest – but most dynamic – corners of this industry…… Secondaries. Secondaries is a catchall term these days for all kind of “liquidity solutions”. Most of the capital is deployed in either traditional LP-led secondaries or GP-led continuation vehicles, which have surged in recent years to account for around half of Secondaries transaction volume today. But there are also strip sales, NAV-based lending, preferred equity solutions, etc. The industry has gotten quite creative! I mentioned that Secondaries is a smaller market………… so why care? The fact that Secondaries is small is a big reason why people should care! To give a sense of scale, with global Secondaries transaction volume of around $120B annually, the market provides only ~1% liquidity for the ~$20T AUM alternatives industry. By comparison, the US public equity markets turn over more than $200B in assets daily. Of course, most alternatives strategies are inherently illiquid. Investors can’t expect to get liquidity with the same ease as public markets. But is there a reasonable place between the current 1% private markets liquidity and public equities for investors to cash out when they need or want to……..? Demand for Secondaries would suggest that the market could indeed be much bigger. LPs feeling the current ‘liquidity squeeze’ or proactively rebalancing their portfolios are increasingly selling stakes. GPs looking to hold onto their best assets while providing LPs liquidity (and securing some DPI) are driving demand for continuation vehicles– 2024 is poised to be the biggest year ever for these transactions. And, as more private wealth comes into alternatives, investors are finding Secondaries are a great way to gain exposure. Secondary funds offer diversification, an accelerated J curve, and an attractive risk/return profile. In fact, Secondaries is the only alternatives asset class where even the bottom quartile delivers a positive return (see the chart below). Read about Secondaries and more in Bain & Company’s 2024 Global Private Equity Report here https://lnkd.in/ejheN_sf. #privateequity #privatemarkets #privatethoughtsfrommydesk