What is secondary investing in private equity?
Overview. Secondary investments are primarily purchases of funds that are three to seven years old with existing underlying portfolio companies. Sales are often driven by an investor’s need for liquidity or active approach in managing their private equity portfolio.
Why is private equity secondary market?
An attractive option for buyers In addition, unlike at the time of initial fundraising, investments made by the private equity fund are already known at the time of a secondary sale. As a result, a buyer can independently arrive at a valuation for the portfolio and underwrite an attractive deal.
What are secondary investments?
What is a secondary investment? A secondary investment occurs when a buyer, like HarbourVest, purchases existing private assets. The seller may want to reduce exposure to a specific stage or region or obtain near-term liquidity on what was intended to be a long-term investment.
What’s the difference between primary and secondary investments in PE?
In a primary investment offering, investors are purchasing shares (stocks) directly from the issuer. However, in a secondary investment offering, investors are purchasing shares (stocks) from sources other than the issuer (employees, former employees, or investors).
How does a private equity secondary market work?
Occurs when a private-equity firm (the GP) is raising a new fund. A secondary buyer purchases an interest in an existing fund from a current investor and makes a new commitment to the new fund being raised by the GP. These transactions are often initiated by private-equity firms during the fundraising process.
How do secondaries work private equity?
In a secondary transaction, one investor buys the ownership rights and assumes any remaining commitments, such as capital calls, of the initial investor. This is the most common secondary transaction. It involves an existing LP that sells its assets to a secondary buyer.
How does a private equity secondary work?
A secondary buyer purchases an interest in an existing fund from a current investor and makes a new commitment to the new fund being raised by the GP. These transactions are often initiated by private-equity firms during the fundraising process.
How are secondaries priced?
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 are investors drawn to secondaries?
Secondaries offer investors a number of benefits, including pre-seasoned investments with early distributions, less out-of-pocket exposure, lower risk, mature, substantially invested portfolios, and the opportunity to diversify their portfolios to protect against market downturns.
What are the 3 types of secondary market?
Types of secondary market
- OTC or Over-The-Counter Markets. An OTC market is considered a decentralized place where the members trade amongst themselves.
- Exchanges. In this marketplace, you will not find any direct contact between the two main parties, the seller and the buyer.
- Auction market.
- Dealer market.