May 14, 2018

Private equity secondary market update – market structure

Read the PDF

Mega-deals in the private equity secondary market are making headlines. Still, they are only one part of the story. In this short educational note we discuss the structure and drivers of the private equity secondary market in 2018. And why the efficiency of this market should not be measured by volume alone.

Contrary to popular belief, the secondary market is heavily intermediated
Many buyers would state that they primarily rely on their proprietary sourcing capabilities. Particularly in the mega deals segment, however, the vast majority of secondaries is intermediated to some degree.

Secondary market participants are increasingly interconnected.

Figure 1: Secondary market participantsIt is not only the intermediaries (advisors or brokers, respectively) who contribute to more competition and firm pricing. Newer market participants, which can be non-traditional buyers such as institutional investors, also play their part, as they opportunistically buy fund interests.

Some of these buyers may have substantially lower IRR targets, and may therefore be prepared to pay higher prices than a dedicated secondaries fund manager. Some banks have started to lend aggressively to secondary buyers and may have contributed to prices being driven up, which again draws additional sellers to the market.

Several factors drive secondary market pricing, and market bi-furcation

Figure 2: Bifurcation of the secondary market by size

The bulk of coverage in the media might suggest that private market funds are only held by large institutional investors such as CALPERS, APG or GIC who have the firepower to commit hundreds of millions per fund. Looking at European private equity data provided by InvestEurope, however, we find that the average fund size is below EUR 200 million. This implies that the median size per LP interest is actually well below EUR 10 million.

Taking the road less traveled

By definition, only one in four funds can be top-quartile. At the same time, 80% of demand is chasing exactly those top-quartile funds and their GPs. This leaves a significant part of the market under-covered, and under-served. Multiplicity Partners caters to these smaller and less-than-stellar performing investment holdings.

No matter how small your LP interest, or how well it performed: contact us if you consider a sale and would like to quickly receive an indicative pricing.

Please write to Andres today at, or call him at +41 44 500 4555.