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Investors offloaded a record amount of private equity stakes on the second-hand markets last year, as the prolonged drought in dealmaking has encouraged pension funds and buyout groups to seek other ways to cash in their investments.
Volumes traded globally reached $162bn in the so-called secondary market, where investors in private equity or other private funds sell their stakes to new investors for cash, or the fund managers themselves sell company stakes to new funds.
The total was a 45 per cent increase on the previous year and more than 20 per cent higher than the previous peak in 2021, according to an analysis by investment bank Jefferies.
Secondary deals have boomed in recent years as private equity firms have struggled to exit investments through IPOs or sales at sufficiently attractive valuations, resulting in a dearth of cash distributions to the funds’ backers.
Fund investors — “limited partners”, or LPs — have instead turned to the secondary markets to try to find buyers for their stakes, while the private equity firms who manage the funds — “general partners”, or GPs — have also sought alternative ways to cash in their investments.
“The record secondary volume last year was driven by the sustained low levels of [cash] distributions at a time when many LPs were eager for liquidity,” said Scott Beckelman, global co-head of secondary advisory at Jefferies.
Both limited partners — often institutions such as pension funds, endowments or sovereign wealth investors — and general partners sold record volumes on the secondary market last year, according to Jefferies.
Limited partners sold $87bn worth of fund stakes, a 36 per cent increase on the previous record set in 2021, after a dearth of deals in the first year of the pandemic sparked a rush to cash out and rebalance portfolios that had become too heavily weighted towards private equity.
Investors in funds usually sell their stakes at a discount, but Jefferies said the gap narrowed last year to 6 percentage points below net asset value for buyout fund stakes, from a 9 percentage point gap the year before.
Jefferies said the increase in price indicated confidence that private equity managers would soon be able to sell the underlying portfolio companies, as Wall Street readies for a return of dealmaking under the second Trump administration.
Buyout funds have contended with muscular antitrust regulators in recent years, both in Europe and the US. However a changing of the guard at the main competition authorities in the US, the EU and the UK could serve as a prelude towards a more laissez-faire approach to mergers and acquisitions and help facilitate exits.
Prices for stakes in private credit funds rose even more sharply that ones in buyout vehicles — from 77 per cent of the value of the assets to 91 per cent — after the launch of new funds dedicated to buying second-hand stakes in private debt funds.
Pricing for real estate and venture stakes remained slightly more depressed, at 72 per cent and 75 per cent of the value of the underlying assets respectively.
“You have so many underlying LPs saying: ‘I haven’t had distributions out of my venture portfolio going on well over 24 months now’,” said Todd Miller, who also serves as global co-head of secondary advisory for Jefferies.
Private capital firms also turned to the secondary markets, with general partners selling $75bn of assets in 2024, 44 per cent more than the year before.
The vast majority of that — $63bn — came from those managers selling their assets from one of their funds to a newer fund managed by the same firm, a so-called continuation vehicle.
Continuation vehicles have become a popular option for private equity firms to return money to the investors in one fund without having to find a buyer for the whole of a portfolio company — particularly where such a sale might not achieve a favourable valuation for the manager.
Three of European private equity firm EQT’s roughly 30 exit events last year involved transferring holdings between EQT funds, a person familiar with the matter told the Financial Times, although all three also brought in outside investors.
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