The Secondary Market for Private Equity Funds is Growing
The financial crisis of 2008 set the real estate world on its head. Since then many private equity real estate funds plummeted and investors have been waiting and hoping for the market to recover. The recent real estate market rebound has now allowed for investors to sell their private equity funds and has created a secondary market for partnership interests.
Recently one of the largest investors in the secondary market, Blackstone group LP, purchased a large sum of stakes to the tune of about $3 billion at the end of 2014. According to market participants familiar with these accrued private equity funds,the average closing date of the funds this company accrued had closing dates set in 2007, previous to the real estate market plunge. Since the values of these funds have rebounded in the United States and European markets it has reduced the loss of selling enough for companies to release these funds to buyers.
In 2015 the secondary market trading volume of partnership interest in real estate private equity funds is expected to exceed $10 billion up from $ 7 billion in 2014 according to researchers. During the recession most partnership stakes were sold in secondary market situations by institutions that were barely hanging on willing to accept as much as 40% less than the net asset value in order to survive. Today these accounts are being sold at a 10% discount or less looking promising for both sellers and buyers of these private equity funds.
With more return on investment there are more sellers, but also more buyers are showing up in the secondary market as well. These buyers are encouraged somewhat by high returns that have been posted by early entrants that bought such properties from distressed sellers. CBRE Group Inc. has estimated that about $6 billion to $7 billion has been raised over the last 18 months for investing in the secondary market at market and individual pension funds.
Mr. Barker of CBRE group Inc. has said the interest in the secondary market is increasing because partnership interests are being sold and have known track records to be liquidated sooner then newer assets in new or private equity funds.
With this rebound this secondary market for these private equity funds has become much more competitive leading to an ever growing secondary market.