The most popular approach involves secondary directs (also called synthetic secondaries) as a way to unload long‐held underperforming portfolio companies and/or avoid a “zombie” fund containing only hard‐to‐value illiquid investments that have lingered beyond the fund’s targeted lifespan.Ī secondary direct involves the sale of portfolios of direct investments in operating companies, rather than limited partner (LP) interests in investment funds. In the “fund as seller” model, GPs use secondary sales as a strategic tool involving the sale of interests in illiquid portfolio investments. Although the “investor as seller” remains the most common secondary transaction model, two GP‐led models have gained traction among fund sponsors, bringing new opportunities, but each facing their own challenges. With these expansions in the seller and buyer universe, GPs no longer avoid secondary transactions rather they often court the secondary market directly to increase their own portfolio flexibility. In addition, buyers like the ability to evaluate the holdings before deciding to purchase a secondary interest in a fund. Shorter investment terms, J‐Curves and attractive pricing appeal to many new buyers. GPs similarly recognize that the universe of interested buyers has grown exponentially. These sellers may be regulated institutions needing to divest private equity interests due to regulatory changes or other institutional investors simply looking to adjust and/or diversify their private equity portfolios. Things have changed.įacing public market volatility, a stalled IPO market and prevalence of PE capital available from fundraising, private equity managers see opportunity.įirst, GPs see that the universe of sellers has become much larger and more diverse, spreading across all types of institutional investors from banks, to family offices, to endowments, pension funds and even sovereign wealth funds. The secondary markets were previously attractive to a small number of participants, as investors tried to sell assets at discounts to their net asset value, and general partners (GPs) hesitated to allow the transfer of investment interests in their funds. Secondary sales of private equity fund interests are emerging as a growing force. Please feel free to reach out to the contacts listed below should you have any inquiries. Monument Group has recently formed a strategic alliance with Mozaic Capital Advisors, LLC, a full service boutique firm specializing in secondary market transactions for private equity, real estate and other alternative asset interests. Monument Group provides periodic industry and regulatory updates to its clients on various topics related to private equity funds and their distribution.
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