Gauging Secondary Markets
Secondary markets have been all the rage for those predicting a rush for the exits by endowments, foundations and other LPs in Hedge Funds, Private Equity and Venture Capital Funds. Multiple universities are known to have gone out to the secondaries to rebalance their portfolios only seeing chasmic separations between bid ask spreads on their portfolio offerings. Articles such as the one below exclaim LPs rushing for the exits. There are numerous buyers at 50% but not at 60% or 70% made. As NYPPEX reports "So many limited partnership interests have come to market that supply is overwhelming demand, arguably leading to depressed pricing. That in turn, has led to some pent-up activity, as sellers not absolutely desperate to unload their interests pull back, discouraged at the offers they’re getting".
Altassets reports that investors have interest in secondary markets because "Some of the advantages of secondary-market investments include: extremely favourable purchase prices now available because of depressed valuations as well as acute liquidity needs among institutional investors; attractive risk-return profiles; and relatively short lock-in periods of around four years. “ , You can find more here,
Blogger Zero Hedge reports on parallel opportunities on the secondary markets for Hedge funds, from Hedgebay. Firms such as Laurus have $8 billion of stake on the market. Other firms that are available are ESL and Ackman. More info here,
http://zerohedge.blogspot.com/2009/06/hedge-fund-diversified-portfolio.html
Though there are many discussions about the number of buyers available, there may be some circularity attached to the secondaries as 30% of LPs are saying they may want to purchase secondaries . Even more circularity is that more than 40% of LPs and institutions would consider buying in the secondary markets but only 10% are considering selling. A Preqin report noted that most Institutions that are considering secondaries are looking primarily at receiving stakes in buyout funds and fewer are looking at Venture or growth oriented funds. Most of these investors favor North American or European funds while fewer are considering Asian or emerging markets.
http://www.eurekaprivateequity.com/All_News.asp?id=9013
The Thunderbird quarterly reports that as bid-ask spreads widened dramatically, secondary market activity slowed. It expects NAV to decline in 2009 and the markets to pickup more. Capital raised by secondary funds is still not close to the $15 billion in it’s banner year of 2007, though we are only halfway through the year. In the Probitas Partners survey, 58% of LPs expected 2009 vintage buyout funds to be highly successful with 42% expecting secondary funds to have great success.
Altassets in a pre meltdown article writes that some secondary Funds of Funds (FOF) have a history of developing first rate relationships with ongoing PE and Venture funds and have advantages of established relationships and liquidity to delivery competitive bids quickly to those funds,
Many of those funds have been most active during this period. We have written about MTVLP’s success in buying shares of emerging technology companies such as facebook on the secondary market at deep discounts.
http://www.mtvlp.com/article.php?id=76
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