Simplifying PE Secondaries: What Are They Exactly?
Hi everyone, I'm trying to wrap my head around PE secondaries. Could someone break down this concept in the simplest terms possible? Thanks for any help!
Pension Fund is a limited partner in a Bain Capital fund. Pension fund no longer wants to invest in the fund so sells their position to a secondary fund, sometimes at a discount to it's NAV. You own something and sell it to someone else.
From what I’ve heard, they trade at a 30% discount usually.
ive gotten multiple inbounds from LPs wanting to exit at a premium to NAV, so where did you get 30%..
Really depends, generally most asset types (buyout, growth, venture, etc.) are trading at a discount. Though 30% discount is more venture/growth discounts right now
https://www.linkedin.com/posts/jefferies_global-secondary-market-review…;
Should have probably clarified, I’m just a student and that’s what a partner at a FoF told me a while back… I have no idea what asset type he was referring to, and whether that figure is still up to date.
From what he said, and I read, I would have thought that they mostly trade at a discount though.
You can back into what an appropriate discount is. 30% discounts means almost no growth on the underlying assets, secondary return all from discount. If you think there's more growth in the assets, then you can pay more.
Basically providing liquidity in an illiquid market. Purchasing stakes from LPs (historically often at a discount, this changed a bit). Secondary funds are super diversified by nature, resulting in relatively steady results. Fees are usually lower than in direct buyout, explaining why it is very easy to accumulate large amounts of AUM in secondaries. Also due to information, ticket sizes etc, the strategy favours (in my opinion) very large secondary players.
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