By Mathieu Rosemain and Andres Gonzalez
PARIS/LONDON – The secondary market for private equity funds saw record transaction volumes last year as buyout bosses and their investors looked for ways to generate cash amid a downturn in dealmaking.
Paris-based Ardian said this week it had raised $30 billion in the biggest-ever secondary fund, a signal the industry is betting on an even busier time as exit paths for investments remain tricky and private equity firms look to hold assets for longer.
Secondary managers buy private equity investments from investors in the buyout funds, which need their cash back faster than managers can deliver.
The likes of Ardian also invest in so-called continuation funds, which buyout firms use to hold assets beyond the life of the original fund because they want to stick with high-performing assets or because they are struggling to sell them profitably. The number of continuation funds has increased around four-fold in the past five years, according to Bain & Company.
“There is a mega trend of private equity firms trying to hold on to their best assets for longer,” said Greg Ciesielski at HarbourVest, one of the biggest secondary managers globally.
Last year saw north of $150 billion in secondary market deal volumes, according to Imran Hameed, managing director at PJT Park Hill, beating 2021’s previous record of around $130 billion.
Ardian’s fundraise – the firm has already spent half of the cash it has raised – was $7 billion bigger than the previously largest fund closed in 2023, Preqin data show.
“By 2025, we’ll have at least as many sellers bringing portfolios to sell,” said Ardian’s Vladimir Colas, Co-Head of Secondaries & Primaries.
“On the secondary market, we’re still undercapitalised, but we can do transactions. And the other phenomenon is, the expectations between what sellers want and what buyers can pay is narrowing.”
Overall, secondary fundraising last year reached $56 billion, down from 2023’s record $92 billion, according to Preqin.
Victoria Chernykh, an analyst at Preqin, said Ardian’s record haul, along with two other managers looking to raise $10-$15 billion funds, signalled a busy year although another record was unlikely.
While dealmaking activity is increasing, it still lags historical levels and initial public offering markets remain difficult.
“Private equity funds have made few distributions in recent years,” said Marion Cossin, who heads the secondary advisory team at Lazard (NYSE:LAZ) in Paris. “This is prompting some (limited partners) to sell holdings on the secondary market to generate liquidity.”
Hameed said private equity-led sales were no longer considered “exotic” or “the fallback option if a regular sale process has not worked out”.
But as cash pours into the secondary market, the discounts at which managers can buy investments have narrowed, reducing returns, sources say.
Preqin’s Chernykh cited a recent survey showing that secondaries were no longer investors’ top target. She said some were loath to invest in secondary funds given the fees and because returns now looked similar to traditional buyouts.
(Writing and additional reporting by Tommy Reggiori Wilkes; Additional reporting by Iain Withers; Editing by Anousha Sakoui and Ros Russell)