Brian BollenGlobal investment manager Schroders reports the completion of the acquisition of Adveq, a Swiss asset manager investing in private equity globally. The buy, announced on 20 April, has now received regulatory approval. Adveq has been renamed Schroder Adveq.
Schroders says the acquisition accelerates the growth of its private assets business, with more than US$7bn of client commitments. It complements existing capabilities and expertise in the real estate and infrastructure finance sectors.
Sticking with private equity and Switzerland, a just-published report from Crédit Suisse shows that secondary market private equity activity could near record levels this year. The figure could pass the record $38bn seen two years ago.
Turbulent and unpredictable
On the back of a politically turbulent and unpredictable 12 months, it is clear that the secondary market is going through its own cyclical and secular changes, if for different reasons, say the authors of the report.
It is increasingly common to hear conflicting statements from secondary buyers and sellers relating to deal volume, pricing and market trends, in line with the theme of polarisation globally and the “certainty of uncertainty”.
“While Q1 was deemed 'quiet' by some (on the back of a 20% fall in transaction volume in 2016), others state they have been exceptionally busy - this included our secondary advisory team which closed nine transactions during the first quarter.
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Mark McDonald, global head of secondary advisory at Crédit Suisse PFG; courtesy of Crédit Suisse
Keeping the market buoyant
“While there was an apparent dearth of quality limited partner (LP) portfolios earlier in the year, the variety of other transaction types - including general partner (GP-led), direct, infrastructure and more structured LP deals - kept the market buoyant.
“We have seen a further rise in deal flow in Q2, with several larger LP portfolios being launched and more sizeable GP‑led transactions of higher quality assets. Our estimate for 1H transaction volume is $13bn–$15bn, with an estimate of $35bn–$40bn for 20171.”
This could put the market back to near-record territory, say the authors. “Of course, with $3 trillion of private assets under management globally, the market has a lot of room to grow further,” they add.
Echoing Preqin findings
This echoes an earlier finding from private equity data specialist Preqin. It suggests that 2017 could be a record year for secondaries fundraising. This is despite a slowdown in the second quarter of the year.
This in turn follows on from a record high in the first quarter, when several mega funds held a final close leading to a total of $19.4bn being raised, says Preqin. This represents 71% of the total capital secured by funds closed during the whole of 2016.
There are currently 45 funds in market seeking $32.4bn, it adds. The aggregate capital targeted is down from the start of 2017. This is due to the closures of certain mega vehicles. But it is still a significant amount, observes Preqin.
Secondaries still competitive
This shows that the secondaries fundraising market remains competitive, says Preqin. One of the vehicles currently raising capital is Ardian’s ASF VII Infrastructure. $700m. If it reaches its $700m target, it will be the largest-ever dedicated infrastructure secondaries fund.
Secondaries funds continue to show themselves to be safe investments. Less than 2% deliver negative net IRRs (internal rates of return). Investors are not forgoing multiples for the attractive IRR rates being attained either, says Preqin.
The average median net multiple currently delivered by secondaries funds across all vintages is 1.47. This is higher than the 1.37 average for all private capital funds. This performance bodes well for secondaries managers currently seeking capital, says Preqin.
Tracking 754
Preqin says it is tracking 754 investors that have indicated a willingness to sell fund interests on the secondary market within the next two years. This figure is up from 731 in the first quarter of this year.
Fundraising for secondaries funds slowed in Q2 2017; with vehicles closing, the aggregate $3.8bn raised is one of the lowest quarterly totals in recent years.
Preqin calculates that some $178bn in unrealised value is still trapped in buyout, venture capital and growth funds that are 10 years or older. Thus there appears to be ample opportunity for secondaries managers to put their money to work.
PE industry landmark
This year has already seen a separate private equity industry landmark. Preqin data show that the closure of Apollo Investment Fund IX, the largest-ever private equity fund at $24.7bn, brings total buyout fundraising in the first seven months of 2017 to $184bn.
Overall private equity fundraising was $269bn. The current full-year record for buyout fundraising was set in 2007, when funds closed through the year raised $249bn. That year also saw record private equity fundraising at $413bn.
However, two of the top 10 largest private equity funds ever have closed within the past two months. As a result, 2017 is on course to surpass 2007’s total by some margin, calculates Preqin.