Pricing gap for most and least-desired funds at record low

Secondaries buyers are bidding at a 4% difference for the two classes of funds, according to a report by Setter Capital.

The gap in pricing for the most sought-after and least-sought after funds has narrowed to an all-time low, with a 4 percent difference in bids, according to Setter Capital’s latest market price report.

According to Toronto-based Setter’s liquidity ratings, the average high bids for the least sought-after funds increased more than 7 percent to 88 percent of net asset value, with the most-sought after reaching 92.6 percent of NAV, a 3 percent increase.

Source: Setter Capital

The data is based on price reports on bids or indications received by more than 1,300 secondaries buyers over a three month period to 31 March.

“Just as small-cap stocks have higher betas and are more subject to market volatility, so too are less liquid private equity funds,” Setter analyst Geoff Bevans told Secondaries Investor. “We attribute this price gap narrowing to the fact that these less liquid funds have risen more than their more sought-after peers in the recent upswing.”

The report also shows that the average top bids for stakes in buyout funds grew more than 5 percent between March 2016 and March 2017, reaching more than 96 percent of NAV.

Infrastructure funds attracted the highest bids of all strategies, up more than 7.5 percent year-on-year, with buyers willing to pay more than 97 percent of NAV.

Cleantech funds experienced the biggest percentage increase over the year with buyers bidding nearly 20 percent more in the first quarter of this year compared with the same period last year at 75.5 percent of NAV.

Setter’s liquidity ratings indicate how saleable a fund is on the secondaries market and are in large part determined by the collective shortlists of these 1,300 buyers.