The overall secondary market saw $79.7 billion in completed transactions in 2018, up 31.3% from 2017, according to the annual Setter Capital Volume Report.
The private equity secondary market increased 36.2% year-over-year, to $70.2 billion, the report said.
Private equity fund secondaries reached $43.8 billion in 2018, up 25.9% from 2017, driven by the strong market for both leveraged buyout funds — up 20.7% — and purchases of funds of funds and secondary funds — up 89.8%.
"It was a record year," said A.J. Patel, a senior associate at Setter Capital and member of the fund manager solutions team, in a phone interview. "Much of that was a result of some large portfolio sales and an increase in larger players doing larger deals."
Traditional fund secondaries were up 20.4% to $51.4 billion in 2018 from 2017, while direct secondaries rose 56.7% to $28.2 billion. Directs include fund recapitalizations and restructurings, fund liquidations, and purchases of single minority stakes and co-investments. Private equity directs were $26.4 billion and real estate directs were $1.8 billion.
Meanwhile, real estate secondaries dropped 8.3% to $5.8 billion, while hedge fund secondaries dropped 38.3% on a year-over-year basis to $460 million. Private debt secondaries were down 16.7% to $1.5 billion in 2018 from 2017, while energy fund secondaries were up 38.2% to $1.7 billion in 2018 from 2017.
While the number of buyers continued to increase, the most significant activity was driven by the large buyers in the market. The 17 largest buyers, defined as those that deployed more than $1 billion in 2018, accounted for 73.7% of the market's total volume, vs. 70.8% in 2017, driven by the increase in larger portfolios for sale and the record amounts of capital raised by the big players.
Sixty-two midsize buyers accounted for roughly 23.9% of the market's volume in 2018, vs. 26.1% in 2017 and 42 small buyers represented 2.4% of market volume, vs. 3.1% in 2017. Buyers continued to diversify their secondary focus with 27% of participants buying other alternative investment types for the first time.
"These large funds of funds have been doing secondary deals for a long time," Mr. Patel added. "But LPs are getting more comfortable with the asset class."
