Experts agree 2015 will likely be a strong year for private equity deal-making as funds flush with cash look to put that money to work even as they continue to face demanding sellers and stiff competition from corporate buyers.
The secondary market, the so-called pawn shop of the private equity universe, underwent a revolution in 2014, transforming its image as the market of last resort for desperate investors to that of an important tool for active managers. In 2015, it will likely continue to evolve into an asset class in its own right, experts say.
The secondary market involves private equity investors such as pension funds, endowments and asset managers selling off their investments in a fund before it reaches maturity. The market picked up during the crisis years, as some investors needed to cash out for access to capital, but it has sustained a strong interest as investors embrace its new liquidity and as some groups cash out of private equity investments because of the Volcker Rule within the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“It is no longer a market of sellers there because of some unforeseen bad thing,” said Howard Berkower, a partner with the corporate practice at McCarter & English LLP. “It is now a much more robust marketplace coming into its own as an asset class.”
“It isn’t just opportunistic buying. There are now different opinions and philosophies of investing, a lot of intelligence and sophistication about trading,” he said. “There is an art to it.“