RYE BROOK, New York, May 19, 2017 /PRNewswire/ -- Industry leaders from Davis Polk, HarbourVest Partners, Industry Ventures, Hollyport Capital and NYPPEX Private Markets discussed insights regarding the secondary private equity markets worldwide via teleconference with limited partners, general partners and private companies at the NYPPEX Roundtable Webinar.
"The 2nd quarter 2017 is seeing a substantial increase in secondary deal volume as both investors and general partners seize prices near historical highs to monetize unrealized values, consolidate holdings and generate cash," stated Laurence Allen, Managing Member, NYPPEX.
"In particular, deal pipelines are showing endowments, foundations, pensions and insurance companies initiate secondary offerings in the 2Q2017 to generate cash to offset expectations for another year of low returns from their portfolios," stated Allen.
Webinar highlights included:
1. Careful with Secondary Purchases of Shares in Unicorns
The most recent example of a Unicorn's private valuation exceeding its IPO market cap was a Palo Alto, CA-based big data software company, privately valued in 2014 at approximately $4.1 billion.
As of May 2, 2017, two days after its IPO, its market cap was approximately $2.6 billion as a publicly traded company, a 36.5% decline. This trend has been driven partially by corporations, mutual funds and hedge funds seeking strategic investments or pre-IPO shares in private capital rounds.
Panelists believe that secondary shares in certain Unicorns can be purchased at 20-45% discounts to last capital round valuations.
2. Secondary Private Equity Portfolio Transactions are Back
In the 2Q2017, a $125 billion sovereign wealth fund ("SWF") based in Abu Dhabi, UAE, completed the largest secondary stapled private equity transaction in history consisting of a $1.75 billion secondary sale plus a $750 million commitment to a new fund to be sponsored by the SWF.
The SWF will retain a minority stake in the funds and companies sold in the secondary transaction. This was the first time the SWF accepted outside capital investment and possibly indicates a trend by sovereign wealth funds to diversity risk of private equity investments.
3. General Partner-Led Transactions Now Comprise 25% of Secondary Private Equity Volume
In the 2Q2017, a global venture firm based in Menlo Park, CA, that has raised over $10 billion since inception completed a $180 million secondary sale of 8 portfolio companies, primarily based in India.
As exit volumes have declined in 2015 and 2016, panelists expect more general partners to make secondary sales or recapitalize older private equity funds to provide a secondary liquidity opportunity to limited partners.
In 2016, NYPPEX estimates that 52% of total secondary private equity transaction volume consisted of tail-end private equity funds (older than 9 years or less than 30% unrealized value to contributed capital).
4. Endowments, Pensions, Insurance Companies Bracing for Another Low Return Year
In the 2Q2017, deal pipelines have increased with prospective secondary sales from endowments, foundations, public and private pensions and insurance companies to raise cash due to expectations that 2017 portfolio returns are unlikely to achieve target threshold rates for the 3rd consecutive year.
Panelists believe that secondary bids remain near historical highs depending on asset quality and that this may be a good time to consider divestitures to generate cash reserves.
Institutional investors, general partners and private companies are welcome to request the NYPPEX Roundtable Webinar PowerPoint and Playback Audio, by contacting Robin Starr Bond, SVP, NYPPEX at +1 (914) 305 2808 or firstname.lastname@example.org.
About NYPPEX Private Markets Established in 1998, NYPPEX is one of the world's leading secondary private equity advisors and transfer administrators for interests in private partnerships, shares in private companies and their respective derivative instruments.
NYPPEX provides secondary private equity market liquidity with investors located worldwide. Since 2004, the NYPPEX QMS™ has been recognized by the U.S. Internal Revenue Service (through private letter ruling PLR-111165-04) as a Qualified Matching Service for private partnerships under Internal Revenue Code §1.7704. Member FINRA and SIPC. www.nyppex.com.
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