Can anyone give me their input on liquidity of a PE investment? I know some firms offer liquidity services where they value and sell a PE LP's stake to another party.
Does this have any effect on the fund? How is this usually done? Is there a significant discount/loss incurred by the seller?
Any info/experiences/knowledge would be appreciated.
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The secondary market for an LP's PE holding is provided by PE FoF investors. Liquidity discounts are applied, but they aren't dramatically different from the initial liquidity discounts ascribed to an original private equity investment, so this dynamic usually won't create any substantial losses.
For all intents and purposes, the sale of an LP's stake to an FoF investor has a negligible impact on the actual PE fund (although I do know of rare cases where an equity sale has included BOD rights, so at the very least there is an impact on the portfolio company's oversight).
From a FoF perspective...
investors make capital commitment to FoF... FoF makes capital commitments to PE Funds...
PE Fund calls capital... FoF calls capital.
Non-FoF LP wants out of fund... finds FoF to buy... FoF buys LP's position(or calls capital to buy FoF position)?
Any idea about the FoF fee structure?
Elan - the link below will answer anything you need to know about the buyout business.
http://www.fsa.gov.uk/pubs/discussion/dp06_06.pdf
FoF fee structures are much lower than those of primary investment PE funds.
I've seen a variety of structures, but on the whole I'd say they charge about half (e.g., 1/10 vs. 2/20) as much, and sometimes less.
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