London-based Coller Capital, which specializes in buying private equity from investors making early exits, said it expects to launch a new fund this year and predicted the "secondary" market for private equity could more than double in the next 2-3 years.
The firm will "very likely" launch its sixth private equity secondaries fund in coming months as it expects a rise in distressed sales, Alex Sao-Wei Lee, the firm's Singapore-based principal, said at the Reuters Private Equity and Hedge Funds Summit.
Private equity tends to be illiquid, with investors often having to wait several years before they can realize investment gains or cut their losses.
Coller, which manages about $8 billion, is one of several firms that aim to make money by buying over existing portfolios and investments from managers and investors who need to raise cash by selling all or part of their portfolios.
The firm's $4.8 billion Coller International Partners V fund, which closed in April 2007, is currently more than 50 percent invested, Lee said.
Lee said that only 3-7 percent of private equity commitments are currently transacted in the secondary market, and the figure could rise to as much as $50 billion in the next 2-3 years, compared with $20 billion in 2008.
About $16.1 billion worth of private equity changed hands in the secondary market in 2007, he added.
"In this environment, you will definitely see more cases of distress. More people will be selling to fund a shortage of cash," he said.
Citing a recent survey by his firm, he said 64 percent of respondents said they might sell assets in the secondary market to increase liquidity, while another 60 percent said they would use it for portfolio management.
He added that the secondary market for private equity was not restricted to Europe and North America but also covered Asian investors. Many of the deals had never been publicized, he said.
For instance, Coller had in 2006 taken over about $40 million of a $240 million private equity fund managed by India's ICICI as investors wanted to realize some of the gains on their investments.
Unlisted Coller was set up in 1990 by Jeremy Coller, a Briton who regularly appears on the list of the most powerful people in the UK private equity industry. The firm's recent investments include a roughly 20 percent stake in SVG Capital Plc SVI.L, a London-listed private equity fund.