GP-led secondary markets, where transaction volumes have increased rapidly, still account for only a fraction of total LP distributions, leaving plenty of room for growth.
On average, sponsor-initiated secondary litigation has accounted for $32 billion of the $1 trillion paid out to LPs annually since 2015, according to Hamilton Lane data included in documents prepared for the Aug. 26 board meeting of the Teachers’ Retirement System of Louisiana. That’s about 3 percent of total distributions each year.
This trend is consistent with TRSL’s distribution figures, which, according to meeting documents, show that continuation vehicles accounted for less than three percent of TRSL’s annual distributions.
That ratio could actually be even higher than Hamilton Lane’s estimates, said Yaron Zafir, managing director of Asante Capital Group. secondary investor. He estimated that one in 20 to 25 exits was due to a GP-led transaction, rather than one in 30.
“However, since GP-led transactions are more geared towards mid-sized and smaller deals, it is logical that the (dollar) ratio is lower,” Zafir said, adding that he expects that percentage to increase as well. As GP-led transactions become more common, the amount of capital available for these deals will increase, he said.
Since 2020, TRSL has received approximately $1.7 billion in annual distributions, according to meeting records. TRSL exceeded that average in 2021 and 2022, receiving approximately $2.6 billion and $1.8 billion, respectively.
GP-led companies have become an increasingly popular exit tool, according to several reports over the past 12 months. Private equity vehicles have seen a significant decline in distributions from 2022 and 2023, according to previously reported Secondary investor from investment bank Baird. The bank saw this slump boost growth at GP-led companies. Baird data showed the share of GP-led companies in PE allocation almost doubled in 2023.
Lazard data quoted in BlackRock’s Market outlook 1st half of 2024 The report showed that the percentage of GP-led and sponsor-supported exit volume increased from 7 percent in 2022 to 12 percent in 2023.
A study of mid-market private equity fund managers conducted by Deutsche Numis in October found that continuation funds are the preferred exit method, ahead of dual-track processes, IPOs and private auctions.
