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Navigating Secondary Private Equity Funds
These funds may offer attractive entry points to the PE market . By Kunal Shah and Florence Leung
WHILE PRIVATE EQUITY CAN HELP AN INVEStor ’ s portfolio , many investors don ’ t know where to start with the asset class . They often have a limited understanding of how it works , or they ’ re unaware or have limited access to the different types of funds .
One attractive option they might not be aware of is secondaries . Secondary funds , or funds that acquire pre-existing investments of private equity portfolios , can play an attractive role in a portfolio given some of their unique characteristics . Both primary and secondary private equity funds have a role in the alternative investment universe — and yet they have different qualities in terms of diversification , the time line for capital returns and attractive entry points , or discounts .
For instance , because these funds are operating in a secondary market , they can often buy assets at a discount to their net asset value . They are also generally well diversified and offer a faster return of capital in a space known for its long lockup periods . These can be alluring qualities to people new to the private equity space .
The secondaries market has grown and matured in recent years — and come to play an important role in the way private equity markets function overall . Every year for the past three years , there has been more than $ 100 billion in secondary transaction volumes — a record . And all signs point to more activity ahead . According to Jefferies in its 2024 global secondary market review , the amount of dedicated capital raised by secondary fund managers to invest in secondary markets has doubled over the last six years to over $ 250 billion in 2023 , which is more than two times the transaction volume , meaning there ’ s a big overhang of capital and much dry powder for these investors . The size and activity in the secondaries market is leading
36 | FINANCIAL ADVISOR MAGAZINE | JUNE 2024 WWW . FA-MAG . COM