Selling a fund interest on the secondaries market can be a daunting task for the uninitiated.
Alternatives asset management consultancy MJ Hudson is out to change that with the release to clients of its Catalogue of the secondaries market: A guide to the sale of private equity fund interests, as Secondaries Investor reported on Tuesday.
In the guide, MJ Hudson spoke to leading market participants from the buyside and sellside community to compile 16 common mistakes sellers make. Here they are:
“Hiring counsel that has never negotiated a secondary sale before.” Philip Tsai, global head of secondary advisory, UBS.
“Misjudging the volume of work and time commitment required from the beginning to the very end.” Immanuel Rubin, partner, Campbell Lutyens.
“Forgetting that not all NAV is created equal! The secondary market is increasingly competitive and efficient, so discounts are often reflective of underlying issues.” Jonathan Abecassis, head of secondaries (EMEA/Asia), Credit Suisse private fund group.
“A seller’s lack of commitment and an unclear timeline can cause potential buyers to be unwilling to spend time on the process.” Mauro Pfister, managing director, Capital Dynamics.
“Seller is not clear about objectives and pricing expectations – what is one’s hold versus sell threshold and is it realistic in the current market?” Bernhard Engelien, managing director, Greenhill. He also adds: “Going to market unprepared (ie., reserve price, possible tax leakage in terms of ECI & FIRPTA) and having unrealistic expectations.”
“Placing too much value on the internal ‘GP marks’ after a fully run process.” Pablo Calo, partner, Fairview Capital Group.
“Failing to appreciate that different fund profiles are attractive for different types of secondary investors.” Yaron Zafir, former head of secondaries, Rede Partners.
“Avoid launching a secondary sales process in November with a target close date at the end of the (same) calendar year.” Elly Livingstone, partner, Pantheon.
“Brokers are the number one reason that deals fall apart.” Mathieu Dréan, managing partner, Triago.
“Having too high or unrealistic price expectations at the start will not lead towards a positive outcome of the process.” Dominik Meyer, managing partner, AXON Partners.
“The lack of pricing visibility in secondaries frequently results in dissatisfied sellers and buyers who are unable to bridge bid/ask spreads.” Dan Nolan, director, Duff & Phelps.
“When the marked net asset value of an asset changes mid-offering, the reference value for bids also changes, which may affect the optics of bids presented as percentages of NAV.” Bill Arnold, director, Duff & Phelps.
“Some funds do not take provisions for estimated carried interest and sellers do not realise that buyers will adjust the NAV to accrue for carry. In this situation, sellers’ pricing expectations are likely to be unrealistic.” Etienne Deshormes, chief executive, Elm Capital.
“The most common mistakes we see are sellers using historical reference dates for pricing which is not reflective of the true value of the portfolio.” Sunaina Sinha, managing partner, Cebile Capital.
“Unrecognised tax issues (eg. an offshore investor does not realise the full impact of withholding taxes at the beginning of the transaction).” Peter McGrath, president, Setter Capital.
Further details of MJ Hudson’s guide are here.