Bids for underperforming tail-end funds dropped in 2015

Bids fell by almost 15 percentage points last year amid an increase in the proportion of tail-end stakes being traded on the secondaries market.

Buyers of tail-end secondaries were less willing to pay for stakes in underperforming funds last year than they were in 2014, according to NYPPEX Private Markets.

Compared to 2014, global average bids for fourth quartile tail-end private equity funds slipped 14.75 percentage points in 2015 to 51.75 percent of net asset value (NAV), according to the firm’s 2016 Secondary Private Equity Valuation and Trends Report.

Average bids for median tail-end funds overall also fell, with potential buyers bidding 70.5 percent of NAV in 2015 compared with 78.25 percent the previous year. Bids for top quartile funds were little changed at 83.25 percent of NAV.

Tail-end private equity funds by nature hold the portfolio companies which are most difficult sell, and the firm expects 2016 to be a challenging environment for private equity exits if volatile stock market conditions persist.

“In a scenario of fewer exits and NAV write-downs, NYPPEX expects tail-end funds’ terms to extend and secondary bid indications to decline by 5 percent or more, particularly for out of favour tail-end private equity funds,” the report noted.

For 2016, the firm estimates that sales of tail-end stakes will increase to at least 45 percent of total secondaries deal volume, a slight rise from 43 percent last year.

NYPPEX defines tail-end funds as having less than 30 percent unrealised value versus capital commitments, or being greater than nine years old.

Source: NYPPEX Private Markets