Private equity secondary market acts as the platform for trading of pre-existing investor commitments to private equity. The market mainly supports the selling of investments in the equity funds. The private equity investment sellers also invest their unfunded commitments to the equity funds.
The private equity secondary market has experienced a substantial growth over last decade. The economists are hopeful that the market will grow even more in the future. The secondary market for private equity is on its toes due to several reasons. Some of the factors are:
A slowdown in distributions experienced by Limited Partners in private equity funds
Ending relationships with the General Partners
The need of LPs and GPs to maintain relationships as their portfolios grow
Acquisitions and Mergers
The Changing face of the investment industry
As the limited partners in private equity are going through a slowdown in distribution, they have very few options to get their money back. The secondary sale then becomes one of the tools for them to recover their money. The limited partners need to make space for the general partners for fresh commitments to funds. Hence, the limited partners think of selling the interests in the secondary market in order to reserve high capital. The acquisitions and mergers lead to sale of partnership assets. This may in turn fuel the trading in private equity secondary market. The investment market is changing along with the changing criteria of the individual investors. In the recent time, the wealthy investors are seen to offer volume of deals. In most of the cases, the private equity sellers are the entrepreneurs who ventured for capital funds. But as the market took a downturn, the entrepreneurs are now facing problems to meet the capital calls eventually helping the secondary market.
The sellers may find private equity secondary market attractive for various reasons. The sale of interests in private equity is generally influenced by financial restructurings, reallocation of assets, need for liquidity, non satisfactory performance of some funds, limited expertise in private equity and too small residual amount of investment.
