Unpacking PE Secondaries Insights from S&P Global’s Recent Webinar

Last week, we had the pleasure of hosting the PE secondaries surge webinar, delving into the intricacies of this dynamic, polarizing asset class. With esteemed panelists Stuart Ingeldew from Investec Fund Solutions, Elena Moisei from Kroll, Gareth Lazell from EY and Thomas Mercieca from S&P Global.  Our panelists discussion was centred around identifying the trends, strategies and challenges of this evolving asset class and uncovering its allure in today’s financial markets.

Understanding the Rise of PE Secondaries

The past decade has witnessed a meteoric rise in the private equity secondaries asset class, propelled by an increasingly complex exit landscape and difficulty returning capital back to investors. Against this backdrop, secondaries have emerged as a resilient asset class, characterized by a remarkable upward trajectory in assets under management (AUM) and a growing reservoir of dry powder at the market’s disposal to provide liquidity to both GP’s and LP’s. This ascent signifies a new role secondaries will play in ensuring the PE asset class (as a whole) remains robust and stable throughout different market cycles.

Navigating The Interest Rate Environment

To comprehend the ascendancy of private equity secondaries, it's imperative to contextualize the market dynamics that led to this booming asset class. From 2008 until 2024; low interest rates across the developed world played a major role in driving high PE deal activity and multiples expansion which played a major role in supporting valuations between buyers and sellers in the market. As interest rates slowly began to rise and public market valuations took a turn for the worse; this complicated the distribution profile of PE funds trying to realize their portfolio company holdings and return capital to LP’s in dire need of liquidity.  

Growth Trajectory and Misconceptions

The panelists discussed how the growth rate of the private equity secondaries market has accelerated in recent years, underscoring its resilience and attractiveness as an investment avenue when markets are uncertain and volatile. The asset class has a strong risk-return profile where even lower quartile returns of the asset class remain positive as seen in the exhibit above.

One of our live poll questions during the webinar indicated that many of the live attendees were concerned with the ‘availability of quality target companies’ in the market as a rationale for supporting the secondaries market trend. Our esteemed panelists were also in agreement that “trophy assets” have been the main driver of growth in this asset class as the hoarding of blue-chip assets becomes more paramount in this competitive market. Positive fundraising trends across the PE universe provide further evidence of the need to nurture and maximize pre-existing assets with major upside.

The Role of Regulators and 3^rd Party Service Providers

Despite the evident need and demand for PE Secondaries as an alternative financing option; there were a diverse range of views on the role regulators can play in mitigating conflicts of interest when it comes to continuation funds and NAV financing. One of our esteemed panelists, Elena Moisei, emphasized three important pillars in ensuring that market participants have a robust process in evaluating PE holdings. The three pillars emphasized were “Transparency, Education and Consistency” with the ultimate goal of creating a valuation framework that is more standardized across different regions.  

An interesting finding that was explored in great detail was the evident contradiction between PE GP’s who ‘somewhat and strongly agree’ that Continuation Funds create problematic conflicts of interest yet also believe that their firms can benefit from the liquidity options they provide for restructuring purposes (as seen in the survey results below). There appears to be a ‘gray area’ even amongst the market participants that seek to gain the most from this nascent, emerging fund structure.