GLOBAL - The secondary private equity market is attracting increasing interest from pension schemes and institutional investors, a survey by Preqin reveals.
42% of the investors that are highly likely to purchase fund interests on the secondary market said they were looking to make a purchase immediately and the remaining 58% anticipated purchasing fund interests at some point within the next 12 months.
Public pension funds account for just over a quarter and their private sector counterparts make up a further 14% of the limited partners Preqin identified as having an interest in buying stakes in funds on the secondary market in 2009-10.
Data show 95% of respondents stating a specific rather than opportunistic attitude towards fund preference are interested in purchasing interests in buyout funds, while 20% are looking specifically to purchase stakes in venture funds.
On the sell side, a total of 9% of institutions with private equity fund holdings are considering selling fund interests on the secondary market within the next two years, with an additional 1% classing themselves as extremely likely to be making a sale.
Capital Dynamics co-head of the secondary program Marco Wulff warned on generalisations in the secondary market and said: "Mature funds would provide a more liquid investment solution for LPs.
"Generally funds from the vintage years 2005 to 2007 will not contribute much to short term liquidity due to longer expected holding periods. You have to be very careful to balance what you want to achieve with the assets you buy."
In addition, Marco Wulff added it was very important investors had the necessary skill set and understood the underlying portfolio of the fund they targeted, in particular the stability of the companies, leverage levels and terms.
Last December, Coller Capital's latest Global Private Equity Barometer revealed two thirds of private equity investors would have little or no capacity for new fund commitments by the end of 2009.
At then time, Coller Capital chief investment officer Jeremy Coller said: "With portfolios suffering from both the denominator effect and the distributions drought, LPs have three options: to increase their allocations to private equity, to cut their commitments, or to seek liquidity through secondaries.
"In practice, even LPs without allocation or liquidity problems will seek to access the secondaries market, because many will want to re-shape their portfolios to reflect new economic realities."
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