Blackstone Looks At The Secondary Private Equity Market

12/21/17

An October paper put out by Strategic Partners Fund Solutions, of Blackstone, argues that (despite risks and drawbacks) investing in the secondary private equity market can still be a smart play, offering "accelerated returns with lower volatility, lower loss rates, and greater downside protection" than the primary market.

The secondary PE market is the space wherein buyers can access PE limited partnership positions beyond the initial investment period, and sellers can access liquidity. This was once considered a reaction to distress on the sellers' part, but attitudes have changed. Such a sale can also be, for example, "a regular portfolio management tool to rebalance fund exposures and lock in realized gains."

Some History

Since secondary activity can be stimulated either by a desire to lock in gains or by a need to unload distressed shares, the size of this market has increased with "each inflection point in financial markets over the past decade." Its growth has also been stimulated by the increasing sophistication of both buyers and sellers. As an index of this sophistication, the paper observes that more than half of all secondary buyers "have the ability to purchase interests across multiple private equity strategies."

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