Consumers to lower private sector rates to record levels by 2024

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Investors have dropped a large number of private equity shares in the market over the past year, as a prolonged drought has prompted pension funds and consumer groups to look for other ways to cash in on their investments.

Global sales figures reached $162bn in the so-called secondary market, where private equity investors or other private funds sell their grants to new investors for money, or the fund managers themselves sell the shares of the company to the new funds.

The total was a 45 percent increase on last year and more than 20 percent more than the previous peak in 2021, according to an analysis by investment bank Jefferies.

Secondary deals have intensified in recent years as private equity firms have struggled to exit investments through IPOs or high-value sales, which has led to a lack of cash allocations to funders.

Investors – “limited partners”, or LPs – instead turn to the secondary market to try to find buyers for their stocks, while private equity firms – “general partners”, or GPs – have also looked for alternatives. to invest in their investments.

“Last year’s second record high was driven by low levels of (cash) allocations at a time when many LPs were desperate for cash,” said Scott Beckelman, global co-head ‘e of second counsel at Jefferies.

Both limited partners — often institutions such as pension funds, charities or wealthy investors — and general partners sold records in the secondary market last year, according to Jefferies.

Minority partners sold bonds worth $87bn, a 36 per cent increase on the previous record set for 2021, after a lack of deals in the first year of the pandemic caused a rush of exits and rebalancing portfolios that were too heavy. in relation to private equity.

Investors typically sell their stocks at a discount, but Jefferies said the gap narrowed last year to 6 percent below asset value for buyout fund prices, from a gap of 9 last year.

Jefferies said the price increase reflects confidence that private equity managers will soon be able to sell portfolio companies, as Wall Street prepares to return to dealing with management under the administration. Trump’s second.

Buyout funds have battled antitrust authorities in recent years, both in Europe and the US. However the changing of the guard at the main competition authorities in the United States, the EU and the UK could serve as a precursor to a clear merger and acquisition process and help facilitate exits.

The cost of private debt financing rose significantly more than that of car purchases – from 77 percent of the property’s value to 91 percent – after the introduction of the new financing. which are intended to purchase private debt securities.

Real estate prices remained slightly depressed, at 72 percent and 75 percent of the underlying asset value respectively.

“You have a lot of LPs saying: ‘I haven’t received a distribution from my portfolio of businesses that’s been going on for over 24 months now,'” said Todd Miller, who is also global head of Jefferies’ second adviser.

Private equity firms also turned to secondary markets, with general partners selling $75bn in assets by 2024, 44 per cent more than the previous year.

Most of that – $63bn – comes from managers who sell their assets from one of their funds to a new fund managed by the same firm, which is called a progressive vehicle.

Continuing vehicles have become a popular option for private equity firms to return money to investors in a single fund without finding a buyer for the entire portfolio company – particularly where such a sale would ‘ who does not get the value of the manager’s value.

Three of European private equity firm EQT’s nearly 30 exit events last year involved asset transfers between EQT funds, a person familiar with the matter told the Financial Times, although all three they brought in foreign investors.