Speaking at the second day of Investment Week's debut Alternatives Summit, he told delegates the volatility and uncertainty that gripped 2022 meant IPO exits, which are one of the key ways private equity firms return cash to investors, fell sharply.
"We are not yet in a space where we see investors leaving the industry, but what we have seen is that there are fewer investors increasing allocations to private equity than at any point over the last five years," he said.
"Investors expect for the macro environment to remain this way for the next couple of years, so they are largely looking at this as something they have to get used to when they look at portfolio management."
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Demand for liquidity, driven by the denominator effect and a dry exit market, has led to investors selling their stakes in private equity funds through the secondary market.
Secondary funds, or secondaries, purchase existing interests or assets from primary private fund investors, offering a reduced blind pool and J-curve risk, as portfolio assets are known and funded.
"They are not going into the secondary market to exit out of private equity. These are more long-term CIO-driven liquidity events. They are doing this to adjust their cash flows so they can continue to invest into future private equity funds going forward," he said.
"That becomes really apparent when you look at the secondaries market overall, which has grown fourfold over the last decade. Secondaries are seen as a natural hedge to general liquidity pressure."
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Back in 2012, secondary market volumes represented only 5% of total private market distributions of $463bn. By 2022, however, this figure had risen to 10%, according to Hamilton Lane. Annual volume has jumped from $20bn in 2008 to over $100bn in 2021 and 2022.
Given the supply in private asset secondary markets is high, prices are lower than they have been for several years as sellers accept the discounts imposed on them by buyers.
According to Munk, private equity secondaries are currently pricing an average discount to NAV of 15-20%, making the space "an attractive place to be".
"Private equity has been a fantastic success story, but it is almost to a point where private equity is at a cost becoming a victim of its own success, given that so much capital went in so quickly," he said. "Given the growth of the sector has been so rapid, there is not that much capital to fill the supply."