Barclays Upgrades CVC as secondaries surge amid private equity exit slowdown

Barclays has upgraded CVC Capital Partners to "overweight," citing its strong positioning within the rapidly expanding private capital secondaries market. This market is experiencing significant growth, with transaction volumes up 45% year-on-year in 2024, driven by persistent liquidity constraints and limited asset realisations in primary private equity. CVC's strategic acquisition of Glendower Capital has established secondaries as approximately 10% of its AUM, with its latest fund targeting $7 billion, positioning the firm for potential earnings upside given its current valuation discount relative to peers despite its diversified exposure.

Analysis

Barclays has upgraded CVC Capital Partners (AS:CVC) to “overweight,” citing the firm's strategic positioning within the rapidly expanding private capital secondaries market. This market's growth is fueled by persistent constraints on primary private equity realisations, which has elevated the role of secondaries in providing liquidity for both Limited and General Partners. Transaction volumes in the secondaries market surged 45% year-over-year in 2024 to over $162 billion, now constituting 20% of all private equity exit activity, with Barclays forecasting a further 9% CAGR through 2029. CVC's 2024 acquisition of Glendower Capital provides direct exposure to this trend, with the segment now accounting for approximately 10% of its total AUM and management fees. The firm's latest secondaries fund, SOF VI, is targeting $7 billion, and Barclays estimates that each additional €1 billion raised could increase FY26 EPS by 1%. Despite this positive outlook, CVC trades at a valuation discount to European and U.S. peers, with a 2024 P/E of 20.2x projected to decline to 13.7x by 2027, while its dividend yield is forecast to increase from 1.3% to 3.1% over the same period.

Key Decisions for Investors

• Given CVC's discounted valuation relative to peers and its direct exposure to the high-growth private equity secondaries market, investors may consider CVC a compelling long opportunity.
• Monitor the fundraising progress of CVC's SOF VI fund, as its success is a key near-term catalyst for potential earnings upside, with Barclays providing a specific metric of a 1% EPS increase for every €1 billion raised.
• For investors seeking alternative or diversified exposure to the same structural trend, Intermediate Capital Group (ICGIN) warrants consideration, as it has an even larger secondaries exposure at 20% of fee-earning AUM and also holds an 'overweight' rating from Barclays.
• Investors should remain aware that a significant rebound in primary M&A and IPO markets could temper the growth rate of the secondaries market by providing alternative liquidity routes for private equity holders.