When the Venture Capital Fund of America raised the first secondaries fund in 1984, it attracted commitments of $6 million. Within six years, Adams Street Partners had raised a $111 million vehicle. Fast forward to 2016 and Ardian has raked in $10.8 billion of secondaries capital for its ASF VII, the largest dedicated pot of capital for the strategy ever raised.
For the first time, Private Equity International, in collaboration with sister publication Secondaries Investor, has compiled the Si30, a ranking of the largest secondaries fund managers globally by amount of capital raised over a five-year period.
One firm is the clear leader: Ardian. The Paris-headquartered investment giant has raised just shy of $28 billion for secondaries in the last five years, $8 billion more than second-place Lexington Partners.
To put this into a wider market perspective: if Ardian’s secondaries fundraising total was transposed into the PEI 300, which uses the same methodology (a rolling five-year fundraising total) to calculate the world’s largest managers of private equity capital for direct investment, it would put the French firm in fourth place, between Warburg Pincus and Advent International.
It is clear secondaries funds are no longer playing second fiddle to their counterparts in primary direct private equity.
Ardian’s US head, Benoît Verbrugghe, is humble about its recent haul, telling PEI that while fundraising is always a long and tough process, it is becoming smoother as investors become better educated about the asset class.
The firms that made our inaugural ranking span a wide range of strategies and styles, from managers focusing on acquiring large portfolios to those investing in complex GP-led deals and direct secondaries.
The top 10 players have raised more than $127 billion between them since 2011, but what is more interesting is the average amount gathered for the other 20 firms in our list. These have raised on average $1.9 billion each and are needing to come up with ever more innovative ways to deploy capital.
Firms such as Pantheon and Deutsche Bank’s DB Private Equity unit have invested in GP-led restructurings deals, whereas players like Industry Ventures, NewQuest Capital Partners and StepStone are focusing on other strategies such as venture, direct portfolios or real estate.
As impressive as the sums in the upper echelons of the Si30 are, being at the top of the fundraising tree does not necessarily translate into better returns for investors. In fact, on average, the top 30 secondaries fundraisers as a group have outperformed the top five firms every quarter for the past five years, with net internal rates of return almost 3 percentage points higher at the end of 2011, according to data from private equity technology group Bison. This difference has narrowed since, but the top 30 still outperform the top five.
LPs take note: a better diversified portfolio of secondaries commitments on average delivers better returns than one concentrating on the largest players.