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Market Commentary

Qualified Matching Services Needed to Process Expected
Higher Secondary Private Equity Transaction Volumes in 2020

April 21, 2020

  • NYPPEX projects a slowdown in private equity exits in 2020 caused by the coronavirus pandemic, which will lead to a higher volume of secondary interest transactions in private equity partnerships.
  • We believe private partnerships will seek Qualified Matching Services such as the NYPPEX QMS, to process higher secondary volumes as per U.S. Treasury Regulations §1.7704-1 (g) (“IRS 1.7704-1”) also known as the publicly-traded partnership rules (“PTP”).
  • Under IRS 1.7704-1, general partners must (a) categorize each secondary interest transfer under an available safe harbor exemption and (b) not actively participate in the secondary interest transfers of sponsored private partnerships.
  • Violations of IRS 1.7704-1 could result in the private partnership being reclassified as a publicly-traded partnership (i.e. corporation) for tax purposes by the IRS and taxed at corporate tax rates retroactive the first violation date.
  • IRS 1.7704-1 applies to private partnerships with U.S. investors.
  • Because of the negative consequences that would ensue if a partnership were deemed to be publicly-traded for tax purposes, sponsors are careful to avoid PTP status.– Morgan Lewis
  • For general partners seeking a high level of tax comfort, the NYPPEX QMS Platform™ and its IRS private letter ruling - provide the opportunity to meet the requirements of a QMS safe-harbor exemption and permit greater secondary transaction volume.
  • General partners and limited partners interested in learning more are welcome to contact the NYPPEX QMS Desk at +1 (914) 305-2801 or inquiries@nyppex.com.
  • This market commentary is for informational purposes and qualified clients only. It is not a solicitation of a private transaction which may only be done through documents created by the private fund or private company and only in jurisdictions where permissible. Private placements may contain a high degree of risk.
Copyright 2020. NYPPEX Holdings, LLC. All rights reserved. www.nyppex.com
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