Cogent: increase in tail-ends will split pricing

Higher public exposure and limited upside in tail-end fund stakes will drive pricing further apart for good- and poor-quality assets, according to a new report.

An increase in the proportion of tail-end fund stakes being sold on the secondaries market will lead to a further split in pricing between high- and low-quality funds.

Portfolios containing older vintages tend to have higher exposure to public companies and generally have more limited upside, and this leads to lower pricing on the secondaries market, according to advisory firm Greenhill Cogent‘s Secondary Market Trends & Outlook, January 2016 report.

“With this in mind, we expect two pricing/supply themes to materialise in 2016,” the report noted. Good quality assets will price better than they have so far, and inferior quality assets will price worse, and sellers will start to include 2009- to 2012-vintage funds in order to achieve higher pricing for portfolio sales, the report stated.

Buyout funds aged 10 years or older accounted for 67 percent of funds sold last year, up from 21 percent in 2010, according to the report. By dollar value, tail-end buyout funds represented 35 percent of transaction volume last year, a rise from just 13 percent five years previously.

Other strategies also saw a similar trend. By number, 87 percent of venture capital funds sold in 2015 were aged 10 years or older, a rise from 51 percent in 2010, the report noted.