|The Surprising Popularity of Recently Closed Funds in the Secondary Market|
Arguably, the most striking aspect of our ranking of the 10 most popular funds in the secondary market – based on wish list requests made in Palico’s private equity fund marketplace over the last six months – is that the top two spots are held by funds closed fairly recently. First place PAI Europe VI, closed in 2015, invested (referred to as ‘called’ capital in the table above) just shy of a third of its €3.3 billion through March 2016. By September 2016, second ranked Carlyle Capital Partners VI deployed roughly half of the $13 billion it raised through its 2013 final close. Marked interest in such recent funds, with some 50 percent or less of their capital invested, is typical at times when pricing in the secondary market is considered relatively full. Average sales prices in the secondary market have held above 90 percent of net asset value for four years now, with top funds today frequently selling at significant premiums to NAV. In this context, younger funds hold out the prospect of a relative bargain, since they typically have a longer runway for creating value.
|Getting Capital Back Quickly, at Low Risk|
Usually, the two principal attractions of the secondary market are the relative speed with which capital is returned – typically three to four years as opposed to 10 years or more for a primary fundraising – and the lower risk associated with the ability to evaluate real investments, rather than just a track record; the latter is all investors have to go by in a primary fundraising. Today, the 10 most popular funds in the secondary market are on average six years old and have typically called 82.5 percent of their capital commitments for investment. Although we did not calculate called capital the last time we engaged in this exercise in October 2016, the average age for the 10 most popular funds on the secondary market was eight years old.
|European Funds Remains Popular, Asia – Notably China – Makes a Better Showing|
The listing of the 10 most popular funds in the secondary market over the last six months is also noteworthy for its large concentration of European funds. As in October, five of the top 10 funds have Europe as their investment focus. With the euro relatively weak against the dollar on a historic basis, many investors clearly continue to believe that the best bargains today are in Europe. There are also two Asian funds among the 10 most popular, ninth place pan-Asian investment vehicle Baring Asia Private Equity V, and 10th ranked China-focused Hony Capital V. Back in October, there was only one Asian entry – pan-Asian fund Affinity Asia Pacific III in 10th place. China, out of favor for most of 2016, seems to be attracting stronger capital flows this year from private equity investors in both the fundraising and secondary market, as investors bet that China’s slowing economy is about to turn a corner.
|Palico is the First Place to Go for Primaries, Secondaries and Co-Investments|
Out of the hundreds of meetings an investor or a manager takes in the annual private equity commitment process, the vast majority are dead ends. By bringing investable fundraisings, secondaries and co-investments to desktops and smart devices, Palico cuts down on inefficiency, leaving both LPs and GPs more time to discover, analyze and invest in the best opportunities.
Footnotes: Capital called to fund investments through: 1 December 2016; 2 September 2016; 3 March 2016; 4 June 2016