NYPPEX: 3Q2020 Secondary Price Trends for Institutional & Private Wealth LPs in Private Equity Funds Worldwide

Market Commentary

NYPPEX: 3Q2020 Secondary Price Trends for Institutional &
Private Wealth LPs in Private Equity Funds Worldwide

September 16, 2020

Bid prices and depth of liquidity worldwide continued to improve in the 3rd quarter of 2020 for secondary interests in private equity funds as their 1st and 2nd quarter net asset values were disclosed.

However, prices have been more resilient year to date in the private wealth channel as institutional investors continue to be highly selective given the uncertain business environment caused by COVID-19 and the US Presidential election.

In the private wealth channel, secondary bid indications were approximately 72.50 on average (% of NAV) or 12% lower as of August 31, 2020 compared to 81.20 on average as of December 31, 2019 for sub $5 million transaction sizes of interests in private equity fund of funds .

In the institutional channel, secondary bid indications were approximately 75.25 (% of NAV) or 15% lower as of August 31, 2020 compare to 86.25 as of December 31, 2019 for $10-25 million transaction sizes of interests in private equity funds .

We believe there are two secondary price trends that are particularly noteworthy in the 3rd quarter of 2020. First, is that prices have decoupled between publicly-traded alternative asset funds, which have declined approximately 27% on average year to date, compared to secondary interests in private equity funds, which have declined approximately 15% in the institutional channel (and 12% in the private wealth channel)..

Second, is that secondary price spreads are historically tight at only 275 basis points between private wealth secondary bids at 72.50 for interests in fund of funds compared to institutional secondary bids at 75.25 for interests in funds. Historically, NYPPEX estimates the secondary bid price spread between private wealth and institutional transaction sizes and fund structures has been approximately 665 basis points.

Our take away is that private wealth secondary buyers are currently more confident about the future relative performance of private equity funds vs. stocks in general, than are secondary institutional investors. Given the record amount of capital raised for secondary private equity funds year to date in 2020, we project this price spread will normalize in 2021.

Fund of funds with significant exposure to the retail, travel or leisure industries were bid at 68.75 and lower on average in the private wealth channel, while funds with similar risk exposures were bid at 67.72 and lower or received no bids in the institutional channel.

Depth of liquidity and probability of execution remained strong at NYPPEX as we executed 25 of 27 managed auctions for a 92% success rate year to date. The 2 unsuccessful auctions were due to seller’s unreasonably high offer prices.

Called percentages have varied significantly from 15% to 90% year to date for secondary interests in funds in both the institutional and private wealth channels. However, unlike prior years, few tail end private equity funds transacted thus far in 2020.

General partners’ tax compliance remained highly disciplined as the NYPPEX Qualified Matching Service (the “NYPPEX QMS”) under IRS Regulation 1.7704 was utilized on approximately 67% of our managed auctions year to date in 2020.

The time period from launch to settlement date for non-QMS secondary private transfers at NYPPEX remained steady in 2020 at approximately 44 days, despite COVID-19 work from home policies that impacted sellers, buyers and underlying private equity funds.

For limited partners seeking to evaluate portfolios of private equity funds, NYPPEX provides the opportunity for superior analytic insights, transaction speed and price execution through its NYPPEX QMS Platform™ and proactive marketing approach byits specialized professionals.

Qualified private wealth and institutional clients interested in a confidential discussion are welcome to contact NYPPEX at ir@@nyppex.com or by phone below.

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Information as estimated by NYPPEX. Actual results may differ. 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.