Financial institutions’ activity in the secondary market dwindled for the most part in the first quarter as regulatory pressures on banks to dispose of private equity stakes eased.
“Financial institutions have largely paused near-term secondary sale plans, as many banks that were contemplating a sale now intend to re-evaluate later in the year in the light of the extension of the Volcker compliance rule,” Greenhill Cogent wrote in its first quarter secondary briefing.
In December, the Federal Reserve agreed to give financial institutions two additional years to sell their investments in private equity funds. Initially, banks faced a daunting deadline in July to dispose of all private equity stakes they were not allowed to hold on their books under the Volcker rule. The Volcker rule, named after chairperson of the President’s Economic Recovering Advisory Board Paul Volcker, is part of the US’ 2010 Dodd-Frank Act, which applies to US banks and to foreign banks with a US presence.
In 2014, Citigroup and Mizuho were among the large financial institutions that were active sellers on the secondary market, while Goldman Sachs indicated in early 2014 that it had set up a Volcker “implementation team”.
The first quarter was marked instead by continued opportunistic selling by foundations, endowments and public pension funds looking to take advantage of strong pricing, Greenhill Cogent noted, adding that limited partners are also expressing an increasing motivation to more actively sell funds with managers where there are team issues and key-man events.
Secondary pricing in the first quarter was at an average high bid of 91 percent of net asset value for all strategies, according to the firm, an advisor focused on the secondary market for alternative assets. Buyout funds commanded the highest pricing with an average high bid of 96 percent of NAV in the first quarter.