Transaction volume on the alternative investments secondary markets was up 26.2% to $36.7 billion in the first half of this year compared with the first half of 2017, estimates secondary market brokerage firm Setter Capital.
The private equity secondary market, which includes funds and direct investments, increased 29.8% year-over-year, to $31.5 billion. Real estate secondaries dropped 2.4% to $3.1 billion during the same period.
Setter's report shows that purchases of infrastructure funds were up 46.6%, while purchases of fund of funds and secondary funds were up 43.7% to $1.4 billion and $960 million, respectively.
Direct secondaries rose significantly, up 77.1% to $13.64 billion — $12.37 billion in private equity direct investments and $1.27 billion in real estate direct investments — from $7.7 billion the same time the year prior.
North American sellers accounted for the largest proportion of volume in the first half of 2018, selling $22.33 billion, according to Setter's report. That 60.9% portion of secondary sales compared to 44.8% in the first six months of 2017.
In the first half of 2018, Setter recorded 746 transactions, with an average size of $49.2 million per deal. The number of transactions decreased 14.6% from the 874 transactions completed in the first half of 2017, while the average deal size increased 47.8% from $33.3 million in the first half of 2017, driven by the large number of $500 million-plus transactions completed in the first half of 2018.
In terms of sellers, managers of funds across leveraged buyout, venture capital, hedge funds, fund of funds and secondary funds accounted for 42.8% of all sellers, as they continued to use the market to drive liquidity in their funds or liquidity to their limited partners through coordinated tender offers. Pension funds were the next most active sellers, accounting for 23.2% of the first half of 2018 volume, up from 15.4% in the first half of 2017.
Sovereign wealth funds accounted for 5.4% of volume, while endowments and foundations accounted for 3.1%. Looking forward, most buyers expect fund of funds and secondary funds to be the biggest sellers in the second half of 2018, or 30.5% of total transaction volume.
Also, buyers expect total volume for full year 2018 to be $66.4 billion, which would represent a 9.3% increase from the $60.74 billion transacted in 2017. This suggests private equity volume will be $57.05 billion in 2018.