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After slowing to a trickle in the second and third quarters of last year, buying and selling of secondhand stakes in private-market assets, particularly those involving sponsor-led transactions, has snapped back.

In the early spring of 2020, secondary intermediary Mozaic Capital Advisors was about to help three investors launch secondary sales processes involving fund stakes when the Covid pandemic roiled capital markets. The firm advised the three sellers to put their transactions on hold, as widespread repricing of risk prompted buyers to pull back, according to Founding Partner Solomon Owayda.

Just a few months later, however, public markets bounced back along with buyer appetite for deals involving fund portfolios.

“We told our clients let’s come back to market, and they ended up selling at very attractive prices,” Mr. Owayda said. “Buyers were saying, ‘I’m seeing all these GP-led transactions, but I’m not seeing LP deals,’ so they were bidding on all of these.”

After slowing to a trickle in the second and third quarters of last year, buying and selling of secondhand stakes in private-market assets, particularly those involving sponsored transactions, has snapped back, according to secondary buyers and intermediaries. The large number of multibillion-dollar fund portfolios that drove 2019 deal volume to record levels has yet to materialize in a significant way this year. But buyers say they expect that to change by the second half of 2021 as sellers restart transactions that were sidelined by last year’s pandemic-induced volatility. At the same time, the flow of GP-led transactions continues unabated as investment firms look to buy more time for an asset or set of assets from prior funds.

“LP portfolios are coming back in a big way, but it’s not slowing down on the GP-led side,” said Vladimir Colas, co-head of the U.S. arm of Paris-based private investment firm Ardian. “You can’t look at everything because there is too much, so people are picking their spots.”

The dramatic market rebound is evident in the 2021 edition of our Guide to the Secondary Market Buyer Survey – “State of the Secondary Market” as more favorable pricing and a public-market rebound have shifted buyer sentiment. Across nearly every question, this year’s survey demonstrated how quickly the deal environment has recovered from the lows it experienced in the middle of last year.

Overall deal volume dropped dramatically in 2020 ending the year at around $60 billion, according to secondary intermediary Evercore Inc. Nevertheless, many buyers we surveyed are betting this year will more than regain last year’s lost ground. Among this year’s survey respondents, 84% predicted that 2021 would be a record year for secondary transactions, roughly equivalent to the percentage of buyers that responded to a similar survey in 2019. (Table 1)

A rebound in public-stock markets during the third quarter of last year, coupled with greater clarity into what extent the pandemic would affect certain sectors and massive government stimulus, helped revive secondary deal making by the end of last summer. Buyers say general-partner-led transactions, particularly ones involving a single asset or small group of assets, drove the market recovery as it was easier to assess how well the assets in those concentrated deals held up in the pandemic.

“In a large diversified fund portfolio, you have a harder time figuring out where the [Covid] skeletons are.” said Andy Nick, managing director in the private-capital advisory team at financial services company Jefferies Group.

By the first quarter of 2021, however, more fund portfolios also are beginning to hit the market, although many buyers and intermediaries say that most of the fund portfolios that have traded so far have been in the small and midsize range.

“For big deals, it’s a bit more of a bust time, and when a big deal does come out, everyone is hungry for it,” said Mike Bego, founder of Kline Hill Partners, a secondary buyer focused on the small end of the market.

A handful of larger firms contend that they still have managed to find plenty of attractive deals even at the larger end of the market. Ardian, for one, backed more than $7 billion worth of transactions over the past 12 months, including a more than $1 billion fund portfolio deal the firm closed in the midst of the pandemic in 2020, according to Mark Benedetti, co-head of the firm’s U.S. operations.

Lexington Partners, meanwhile, backed at least $4 billion to $5 billion of deals last year, according to Wilson Warren, the firm’s president. “Now more than ever, the funnel is so big,” said Mr. Warren. “There’s not enough capital and people to prosecute everything that’s in the market. “It will be a large year there’s no question about it. The question is, will it be larger by a mile or by several hundred meters?”…

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