Investors are projecting record-breaking private equity volume in 2024

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Investors unloaded a record amount of private equity stakes on secondhand markets last year, as a prolonged dealmaking drought encouraged pension funds and buyout groups to look for other avenues for their investments.

Trading volumes globally have reached $162 billion in the so-called secondary market, where investors in private equity or other private funds sell their shares to new investors for cash, or fund managers themselves sell company shares for new money.

The total was up 45 percent on the previous year and more than 20 percent higher than the previous peak in 2021, according to an analysis from investment bank Jefferies.

Secondary deals have boomed in recent years as private equity firms have struggled to exit investments through IPOs or sales at sufficiently attractive valuations, resulting in a scarcity of cash distributions to backers.

Fund investors — “limited partners,” or LPS — have turned to secondary markets to try to find buyers for their risks, while the private equity firms that manage the funds — “general partners,” or GPSs — have also sought to cash out their investments.

“Last year’s record secondary volume was driven by low levels of (cash) distributions at a time when many LPs were keen on cash,” said Scott Beckelman, global co-head of secondary advisory at Jefferies.

Both limited partners — often institutions such as pension funds, endowments or sovereign wealth investors — and general partners sold record volumes on the secondary market last year, according to Jefferies.

Limited partners sold $87 billion worth of fund stakes, up 36 percent from the previous record in 2021, after a dearth of deals in the first year of the pandemic sparked a rush to exchange and rebalance portfolios that had become heavily weighted toward private equity.

Fund investors typically sell their stakes at a discount, but Jefferies said the gap narrowed last year to 6 percentage points lower.

Jefferies said the increase in price indicated that private equity managers would soon be able to sell underlying portfolio companies, as Wall Street prepares for the return of deals under a second Trump administration.

Buyout funds have struggled with muscular antitrust regulators in recent years, in Europe and the United States. However, it could be a changing of the guard in the major US competition authorities, as the EU and UK could serve as a precursor towards a riskier approach to mergers and acquisitions and help facilitate exits.

Risk prices in private credit funds rose sharper than those in buyout vehicles – from 77 per cent of asset value to 91 per cent – after the launch of new funds dedicated to buying used risks in private debt funds.

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

“You have a lot of core LPs saying, ‘I haven’t had distributions from my venture portfolio beyond 24 months,'” said Todd Miller, who served as global co-head of secondary advisory for Jefferies.

Private capital firms have also turned to secondary markets, with general partners selling $75 billion in assets in 2024, 44 percent more than the previous year.

The vast majority of that—$63 billion—came from these managers selling assets from one of their funds into a new fund managed by the same firm, a follow-on vehicle called.

Continuation vehicles have become a popular option for private equity firms to return money to investors in a single fund without having to find a buyer for an entire portfolio company – particularly when such a sale does not achieve a positive rating for the manager.

Although three of the European private equity firm EQT’s exit events last year involved the transfer of holdings between EQT funds, a person familiar with the funds told the Financial Times.