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PRIVATE EQUITY: SECONDARY MARKETS Private equity secondary pricing was little changed in the second half of 2012, with average high bids at approximately 80% of net asset value (NAV), which represented a 20% discount to reported values. 1 Last year’s volume matched the record set in 2011, with $25 billion of transactions closed. Private Equity Secondary Bid Prices Average High Bid 120% 100% 80% 60% 40% % of NAV Private Equity Secondary Bid Prices 20% 0% Source: Cogent Partners Secondary Pricing Trends and Analysis, January 2013 Source: Cogent Partners Secondary Pricing Trends and Analysis, January Several trends emerged with respect to the types of assets sold in the secondary market. In the buyout sector, funds raised during peak years (2005, 2006, and 2007) represented an estimated 60% of transaction volume over the past three years. These funds are five years old on average. Conversely, trading in venture capital funds has been concentrated in funds at or near the end of their terms. Fundraising volume in venture peaked in 1999 and 2000, and over the last three years, more than 40% of the venture funds marketed by Cogent, a leading investment bank for secondary markets, were more than ten years old at the time of sale. Financial institutions and pensions remained the largest sellers of secondaries. These investors drove most of the commitments during the peak fundraising years of 2005 to 2007. Selling from banks slowed in the second half of 2012, partly due to the rally in the public equity markets and delayed regulatory action. Cogent estimates that banks are holding $70 billion of illiquid private equity assets on a global basis, which serve as a potential pipeline for future transactions. Completed Completed Transactions in 2012 By Sellers (Transaction Value) 2% 2% 12% 21% 10% 24% 29% Financial Institution Public Pension Corporate Pension Fund of Funds Family Office Source: Cogent Partners Secondary Pricing Trends and Analysis, Source: Cogent Partners Secondary Pricing Trends and January 2013 Analysis January 2013 Page 10 FOURTH QUARTER 2012 Nathan C. Werner, CFA Senior Vice President “Last year’s volume matched the record set in 2011, with $25 billion of transactions closed.” © 2013 Fund Evaluation Group, LLC
Page 11 FOURTH QUARTER 2012 Secondary fund managers indicated that deal flow is slowing. The level of stress witnessed several years ago continued to dissipate and pricing has stabilized. Overall volume is likely to remain robust but trend down in 2013, in line with the historic pace of primary market fundraising. 1 Cogent Partners Secondary Pricing Trends & Analysis, January 2013 © 2013 Fund Evaluation Group, LLC
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