GLOBAL - Institutional investors should still bet on a forthcoming "explosion" in the private equity secondaries market, despite a steep downturn in the sector overall, says new research.
According to a study by private equity network AltAssets, private equity secondaries are undergoing a boom time while the rest of the sector struggles to recover from the bursting of the tech bubble.
‘The Advent of Liquidity’ report predicts that the market will increase six-fold through direct transactions to $20bn by 2005, from just $3bn in 2000.
Proceeds of secondary market sales go to the selling dealers and investors, not to the companies that originally issued the securities.
“Institutional investors have realised the value of participating in the secondaries market,” said Chris Davison, head of research at AltAssets.
“The stability of returns, the relative transparency of the investment and the ability to diversify a private equity portfolio quickly have made secondaries an essential investment portfolio tool.”
The report goes onto to predict a change in the market fuelled by factors including:
- a massive growth in deal flow from distressed and over-allocated sellers looking to offload their private equity fund investments after the downturn
- the top ten specialist institutions in the secondaries market each having around US$1bn to invest every year
Richard Sachar, AltAssets’ chief executive, added: We will see real liquidity in the market in the next few years which will make private equity much more attractive to institutional investors who have traditionally been averse to the asset class.”
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