Why do secondary market opportunities trade at a discount?
When investors in these markets do require liquidity — and if they are actually allowed to sell — they are generally forced to offer their interests at a deep discount to an investment’s prevailing Net Asset Value (NAV). As research suggests, 10-30% discounts are common among many private equity secondary trades.
How do you value private equity secondaries?
The pricing of secondaries is based on the reported valuations that private equity funds publish, typically on a quarterly basis, and is expressed as a percentage of the reported Net Asset Value (“NAV”).
Why would an investor prefer to invest in secondary private equity over traditional private equity?
As such, secondary funds may offer significant diversification across managers, industries, geographies, strategies, and vintage years. This diversified approach has the benefit of offering private equity exposure with less risk compared to an investment in a single primary private equity fund.
What is the purpose of the secondary market?
Secondary markets are an important facet of the economy. Through a massive series of independent yet interconnected trades, the secondary market steers the price of an asset toward its actual value through the natural workings of supply and demand. It is also an indicator of a nation’s economic wellbeing.
What is the goal of the secondary market?
The purpose of a stock exchange or secondary securities market, like any other organised market, is to enable buyers and sellers to effect their transactions more quickly and cheaply than they could otherwise.
Why is private equity secondary market?
In an illiquid world of private equity, the secondary market is how investors can cash out their assets without waiting for the fund’s life to end. On the other end, secondaries offer incoming investors a place to buy private equity assets years into their performance cycle and, normally, at a discounted price.
What is secondary market example?
What is the Secondary Market? The secondary market is where investors buy and sell securities from other investors (think of stock exchanges. Examples of popular secondary markets are the National Stock Exchange (NSE), the New York Stock Exchange (NYSE), the NASDAQ, and the London Stock Exchange (LSE).