Chapter 9

Secondary fund transactionsa

9.1 INTRODUCTION

Over the past 10 years, the secondary private equity market has experienced rapid and unprecedented growth. Fueled by the development of the primary market, private equity secondaries, or simply secondaries, exist to provide liquidity to an intrinsically illiquid asset class. As private equity investors have become increasingly sophisticated and the economic environment has become increasingly volatile, there has been a growing need for investors to revaluate their portfolios over shorter timeframes and adapt to changing circumstances. As a result, the secondary market has flourished, allowing investors far greater flexibility in their investment decisions and encouraging new participants into the private equity arena. Given that this is a relatively immature market, it seems clear that greater complexity and scope lie on the horizon.

Private equity secondaries refer to the buying and selling of pre-existing investor commitments (i.e., limited partnership interests) to buyout, venture capital, and other alternative investment funds. Interests sold not only include the current investments in private equity funds, but also the remaining unfunded commitments into these funds. Typically, a secondary transaction involves the sale of a limited partner (LP) interest in a fund or a portfolio of funds, although some secondary transactions may instead involve the sale of direct investment portfolios in operating companies. Sales of ...

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