NYPPEX CEO Laurence Allen Expects Investors to Lock-In
Record Unrealized Value in Private Equity Funds in 2H2022
Private Market Commentary
by Laurence Allen
Unrealized value in private equity funds was at record levels as of December 31, 2021 exceeding $8.5 trillion worldwide as estimated by NYPPEX. For perspective, this level is more than 102% higher than an estimated $4.2 trillion just 3 years ago as of December 31, 2018.
In the first half of 2022, when you consider the following NYPPEX exit estimates: (1) IPO exits comprised less than 1% of total exit volume from private equity funds worldwide, (2) SPAC M&A exit volume declined 87%+ year over year and (3) over 60% of exits were GP to GP transactions (a game of musical chairs), I believe both LPs and GPs are at risk of significant write-downs of unrealized value ahead.
The obvious portfolio strategy now is to lock-in unrealized value through sales in the secondary market. In particular, while bids are generally resilient due to record dry powder with secondary investors, estimated by NYPPEX to be over $140 billion as of December 31, 2021 (exceptions include venture funds, overleveraged funds in real estate, secondaries etc.).
This portfolio rebalancing strategy could also help offset a potential significant decline in distributions, which I expect ahead given current exit trends in private equity funds worldwide.
For further information, please contact me direct at laurenceallen@nyppex.com or +1 (203) 912-9265. This is the 3rd of a 5 Part Series of Private Equity Market Commentaries from the first half of 2022.
Copyright 2022 Laurence Allen. All rights reserved. https://laurenceallen.com
Disclosure: This information is market commentary by Laurence Allen and not a solicitation of private securities transactions which may only be done through private offering documents and in jurisdictions where permitted. Investors should not rely on the information in this commentary as the basis for making investment decisions. This commentary is provided for informational purposes only. You are strongly encouraged to consult with your own independent advisors regarding any issues discussed in this commentary.
Private placements are illiquid, speculative and investors may lose their entire investment.
About NYPPEX Holdings
NYPPEX Holdings is one of the world’s leading providers of secondary liquidity and data services for interests in alternative funds. Its clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, family offices, private clients and their respective advisors worldwide.
Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service as a Qualified Matching Service for private partnerships though a private letter ruling under internal Revenue Code §1.7704. The NYPPEX QMS assists private equity funds meet the requirements of a QMS safe-harbor exemption under IRS §1.7704, which helps ensure regulatory compliance and avoid an adverse taxable event when permitting higher volumes of secondary interest transfers annually.
Its private securities are privately offered to qualified investors through NYPPEX, LLC. NYPPEX is regulated in the U.S. by the SEC and FINRA. Member FINRA, SPIC.
About Laurence G. Allen
Laurence Allen serves as the CEO of NYPPEX Holdings, LLC. Since 1999, he has been a pioneer in the development of secondary markets in private equity funds and private companies.
He has been a speaker at numerous private equity conferences worldwide, including the Institutional Limited Partners Association Spring Conference (Miami), Super Return Middle East Conference (Abu Dhabi), Dow Jones Private Equity Outlook Conference (New York), World Exchange Congress Conference (Barcelona), Private Company Stock Conference (Palo Alto), and Asian Venture Capital & Private Equity Conference (Hong Kong).
Mr. Allen has served on numerous advisory boards including the Wharton School, Bowery Mission and the U.S. Congress Business Council. His diverse civic interests have included the Metropolitan Museum of Art, Boys and Girls Club of Greenwich and Ducks Unlimited which presented him a Lifetime Achievement Award.
Prior to founding NYPPEX, Mr. Allen served in various positions with Merrill Lynch where he helped pioneer the development of secondary markets for commercial and residential mortgages. At Bear Stearns, he helped develop the secondary markets for private debt placements.
Mr. Allen received a BS in Economics and MBA in Finance from the Wharton School at the University of Pennsylvania.