Investors on the secondary market should be able to generate an even higher internal rate of return from acquisitions made in 2017, as cash distributions will likely be received quickly after purchase, says NYPPEX.
Advisors’ presence is also being felt within the secondary private equity market as they rebalance client accounts, says Allen.
“The secondary market is all about risk management, because if someone is unhappy with a private equity investment, they have a means to get out of it,” he says. “Since right now there’s more capital than supply, they’re not having to sell at a big discount.”
Many wealth managers and some wealth management software programs now actively rebalance client private equity and direct investment portfolios, which has created selling and buying activity on the secondary market.
Yet private client transactions only accounted for 7 percent of the overall volume on the secondary private equity market, says Allen.
“These private clients are increasingly important, though, because certain big institutions like pensions are probably decreasing in size over the long term,” says Allen. “We’re only reaching the tip of the iceberg with private wealth clients and advisors for this asset class.”
According to the report, the volume of secondary transactions for limited partner interests in private equity funds increased significantly during the second quarter.
NYPPEX estimates that the limited partnership secondary transaction volume increased by 14 percent in the first half of 2017 to $20.6 billion for limited partner interests in private equity funds.
Volume increased from $8.5 billion in transactions in the first quarter to $12.1 billion in the second quarter.
The volume of secondary private equity fund transactions should break the $40.6 billion record set in 2015, says NYPPEX, which estimates that total secondary transaction volume should exceed $41 billion for 2017.