Pricing gap between good and bad funds grows

Pricing in the secondaries market continues to be high, but the differential between bids for high-quality funds and bids for lower-quality funds is widening.

The average high bid across all strategies was 92 percent of net asset value in the first half of 2015, according to data from Greenhill Cogent.

“I think secondaries pricing is going to be stable in the 5 to 10 percent discount range,” said a partner at a large secondaries firm, despite concerns about Greece, China’s stock market and the yuan devaluation as well as dwindling commodities prices.

But the average does not really reflect what is happening in the market. Quality buyout funds with good assets often sell at a premium, while lower-quality funds can sell at a 10 to 20 percent discount, the partner added.

“There’s a lot of competition for the highest quality managers and you’ll see pricing there increase a bit,” he said. “There’s an increasing bifurcation of pricing in the market.”

There has always been a clear distinction between the different sectors, with buyout funds typically pricing higher, while venture capital and energy funds price lower.

Additionally, a split in pricing between funds that are still in the investment period or harvesting stage and those that are tail-end in nature or nearing the end of their life is also becoming more obvious, as Secondaries Investor reported.

The average high bid for recent vintage funds of less than 10 years old was 93 percent of NAV in the first half of the year, while the average high bid for tail-end funds was 84 percent of NAV.