February 9, 2023

Market remains resilient through volatile macroeconomic backdrop

Raymond James Private Capital Advisory (“RJ PCA”) has released its 2023 Secondaries Market Outlook, having recently surveyed secondaries market participants to produce a report outlining the latest industry dynamics and trends.

The study takes place amidst a period of dislocation, with the Russian invasion of Ukraine, global supply chain disruptions, and rising inflation all contributing to the disruption of financial markets. The equity markets reflect these challenging conditions, demonstrated by the S&P receiving its worst annual return since 2008, and the NASDAQ falling 33% in the last twelve months. Despite the challenging circumstances, the secondaries private equity market remained resilient, finishing 2022 with a deal volume of $105bn.

The survey found that macroeconomic and geopolitical challenges have forced buyers and sellers to become more cautious and conservative in pricing assets. As due diligence processes became more robust, the second half of 2022 saw an increasing shift to more diversified transactions for both LPs and GPs. Despite a decrease in single-asset GP led deals, respondents indicated that 15-20% of secondaries’ dry powder is reserved for high quality single-assets.

“Given that there was limited available dry powder in this year of slower fundraising, buyers had the upper hand and were more selective about choosing their investments. To create liquidity, GPs and LPs began creating innovative structures in the hopes of attracting new buyers,” said Sunaina Sinha Haldea, Global Head at RJ PCA. “The GPs’ efforts can be seen in more involved approaches, as well as their co-investing in younger flagship funds alongside LPs. LPs, in turn, looked to new solutions, using NAV loans, preferred equity, and collateral fund operations to make their mark.”

Increased LP scrutiny and deep discounts

The current public market’s decline was more pronounced in sectors that were perceived to be less recession resilient, as seen in the downturn of technology and growth sectors. This decline, however, did not translate into private market valuations, resulting in increased scrutiny of overallocations with some LPs.

Whilst current market return expectations remained in line with previous years, there was a shift in performance metric focus for GPs and LPs. In GP-led transactions, less than 10% of survey respondents stated that their primary focus was IRR, with over 50% of respondents focusing on MOICs, and ~40% attributing the same attention to both. A majority of LPs, however, chose to equally focus on IRR and MOIC.

In 2023, some transactions will experience difficulty in pricing, specifically in getting buyers and sellers to agree on asset value. This is demonstrated in the fluctuating value of assets throughout 2022. Around 90% of continuation vehicles were discounted at some level, with high quality LP-led transactions taking place at over 15% discounts, and lower quality LP-led transactions facing 30% discounts. In light of these numbers, RJ PCA believes that GPs will be more open to adjusting NAVs in 2023, reducing the gap between sellers’ and buyers’ expectations.

Growing interest in secondary solutions and LP-led transactions

Included within the report, RJ PCA team have made the below predictions on the secondaries market for the upcoming year:

  • An increased pressure on reducing NAVs
  • Diminished reliance on lead buyers to solely fund transactions
  • Increased use of more flexible structures amidst macroeconomic uncertainties
  • Top performing managers and assets to continue to find traction
  • LPs’ selling participation in Continuation Vehicles to remain high
  • Broader access to private equity for non-institutional investors

About Raymond James Financial, Inc.

Raymond James Financial, Inc. (NYSE: RJF) is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. The company has approximately 8,700 financial advisors. Total client assets are $1.17 trillion. Public since 1983, the firm is listed on the New York Stock Exchange under the symbol RJF. Additional information is available at