2024 is turning out to be another bonanza year for dealmaking in the GP-led secondary market.
PE firms across the globe achieved 89 exits totaling $47.3 billion via continuation funds through October, which is the most recent data available. The overall value has already hit an all-time high this year, with projections to widen the lead with a final total between $50 billion and $60 billion, according to a PitchBook analyst note.
This robust growth has been driven by a booming market for continuation funds, which allow GPs to hold onto their trophy assets longer.
Valuation multiples for PE investments contracted over the last two years and limited a preferred method for generating returns: multiple expansion.
To ride out the market downturn, many fund managers that believed in the potential growth of their portfolio companies chose to extend the holding period of these assets and focus on operational improvements.
According to the analyst note, the proportion of PE exits driven by continuation funds has expanded considerably, rising from 2.7% of the total global exit value in 2020 to 7.1% as of the end of October.
On top of that, several deals closed this year topped $1 billion.
European PE firm Astorg launched in July a €1.4 billion (about $1.48 billion) continuation fund to hold its investments in Netherlands-based Normec, which specializes in product testing, inspection, certification and compliance.
In October, Insight Partners closed a $1.5 billion continuation fund to acquire stakes in software companies across multiple Insight funds. HarbourVest Partners led commitments to the vehicle.
In another example, Vista Equity Partners sought to raise a continuation fund of as much as $5 billion for portfolio company Cloud Software, according to reports in May.
Pent-up demand for exits
GP-led secondaries and other liquidity alternatives like net-asset-value loans have proliferated in recent years. However, despite the explosion of these markets, they are still too small to accommodate GPs’ pent-up demand for liquidity, given the sheer size of PE assets awaiting exits.
Global buyout funds are sitting on 28,000 unsold companies worth $3.2 trillion, according to a March report from Bain & Company.
By contrast, dry powder held by global secondary investors totaled an estimated $187 billion as of the first half of 2024, according to Evercore’s H1 2024 Secondary Market Review.
“I think [secondaries] will continue to grow, but it’s still just scratching the surface of the liquidity that’s really needed,” said Brian Wheeler, a partner at law firm Foley & Lardner, at a Dec. 4 media roundtable.
He added that some PE firms lack sufficient personnel to improve the operations of their portfolio companies and prefer to sell those assets to realize returns for investors.
“There are NAV loans; there are secondary funds or LP-led exits—but you still have a huge backlog of companies looking to exit.”
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