StepStone Group closed its fifth secondaries-focused flagship fund at $4.8 billion in commitments, more than double that of its predecessor fund.
The fundraise signals limited partners’ persistent appetite for large products capitalizing on the exponential deal flow in the secondary market in recent years, as the world’s largest institutional investors face mounting liquidity needs. Secondary market transaction volume reached a total of $68 billion in H1 2024, a 58.1% year-over-year increase, according to PitchBook’s Q2 2024 Global Private Market Fundraising Report.
The secondary market frenzy is a product of a lack of traditional exit avenues, like sponsor-to-sponsor sales—when a private equity firm sells an asset to another private equity firm—and initial public offerings, as the market has endured a persistent pricing gap between buyers and sellers. Secondary market products, like LP-led transactions and continuation vehicles, offer alternative routes to GPs and LPs seeking liquidity.
Firms like StepStone use their funds to capitalize on this dynamic, particularly at the larger end of the market. StepStone’s freshly-minted $4.8 billion vehicle represents the dominance of large funds: So far this year, secondary funds that raised $1 billion or more comprised 90.1% of the total secondaries capital raised.
Some of StepStone’s peers came to market with multi-billion-dollar fund closes in H1 2024, including Hamilton Lane’s $5.6 billion vehicle and LGT Capital Partners’ $3 billion fund dedicated to acquiring minority stakes in PE-backed portfolio companies and participating in continuation vehicles.
StepStone also closed a $3.3 billion fund to invest in VC secondaries.
Larger funds give GPs room to participate in larger deals, many of which arose in the first half of the year. In H1 2024, the average price of LP-led transactions, which accounted for nearly 60% of total secondary deal volume, increased by 300 basis points, buoyed by a rebound in public equities and a record amount of dry powder, according to data from Jefferies.
In the first six months of the year, pension funds comprised the majority of sellers on the secondary market, selling off fund stakes and parts of their private markets portfolios in exchange for much-needed cash infusions. This trend is expected to continue as other major pension plans, like Ontario Teachers’ Pension Plan and Dutch pension APG, are reportedly looking to offload portfolio stakes valued over $1 billion in the latter half of the year.
StepStone has already deployed over 50% of its new fund into in both LP-led and GP-led secondary investments.
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