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Laxman Pai, Opalesque Asia: According to BDO's 2020 U.S. Private Capital Outlook report, the private equity industry stands at the beginning of a new decade with more dry powder on hand than ever - $1.5 trillion - thanks to record fundraising in 2019.
In 2002, the secondary market was about $2 billion, according to Preqin. Fast forward to 2020 and Lexington Partners' announcement in January that it raised the largest ever secondary fund, $14 billion, and the year is off to a promising start.
That $14 billion raised by Lexington represents 71% of the total that secondary funds raised in 2019. According to data provider, Preqin, global secondary firms that closed new funds in 2019 raised $19.6 billion, nearly half of what they raised in 2018.
At the same time, secondary deal aggregate value is expected to top $90 billion in 2019, up from $72 billion in 2018.
Private capital has grown in popularity as investors seek higher returns than the public markets can offer, and alternative investments have emerged as a vehicle that offers a way around high management fees and illiquid assets. The secondary market, co-investments and direct investments have been particularly frothy.
"Expect to see more GPs leading secondary buyouts, with more marquee names making the headlines and a continued rise in co-investments. In fact, as a result of the popularity of alternatives, 43% of private equity funds plan to offer co?€'investments to their limited partners," said BDO report.
"Also, expect even further specialization this year as competition continues apace and assets move at or above net asset value. We expect to see more direct secondaries among investors who want liquidity sooner than assets' exits allow," it added.
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