A buyer’s market

The secondaries industry exists to provide liquidity to an illiquid market. In the current period of high macroeconomic volatility, therefore, demand for secondaries’ solutions should be through the roof. To a certain extent, this is true.

“The deal flow we are seeing today is driven by a pressing need for liquidity,” says Jochen Mende, head of secondaries at UBS Asset Management. “Investors [are] overallocated to private markets on the one hand, and in need of cash as other sources of liquidity, including distributions, dry up on the other,” Mende says. “Equally, for GP-led secondaries, the IPO market is not open right now and the M&A market is challenging. So the secondaries industry represents one of the few viable routes to liquidity.”

Ross Hamilton, managing director at Partners Group, agrees with this assessment. “On the LP side, we see two categories of sellers – those seeking liquidity and those overweight on private markets. GP-led transactions remain a tool for extending ownership for the best-performing assets and, increasingly, to drive distributions.”

Indeed, 2022 boasted the second largest secondaries deal volume on record,
surpassed only by the year prior. However, despite undoubtedly favorable market dynamics, many deals failed to close last year for one simple reason: buyers and sellers could not agree on a price.

This is particularly true in the GP-led market, which has been booming in
recent years. “The bid-ask is causing a number of GP-led processes to stall,” says Hamilton. “There has been an expectation that GP-leds will trade at par, but if the valuation hasn’t adjusted to economic reality, it’s challenging to agree on price.”

“Pricing discrepancy is the key inhibiting factor at the moment,” agrees Gavin Anderson, partner at Debevoise & Plimpton. “Private markets valuations don’t appear to have tracked the public markets as closely as they have in previous cycles.”