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Secondaries buyers expect VC fire sale

Overall secondaries market volume is expected to drop by about 30% this year, according to a survey by Setter Capital.

Secondaries buyers anticipate steep discounts on venture funds due to the economic downturn caused by coronavirus, research has found.

Venture capital funds should sell for about 60 percent of their net asset value today versus about 78 percent of NAV less than three months ago, according to a Setter Capital poll of 39 active/regular buyers on the secondaries market for alternative investment funds.

To put that into perspective, leveraged buyout funds are expected to sell for about 77 percent of NAV today versus 102 percent of NAV in December, Setter noted.

“[In recent years] there were some prices being paid in the private markets that made no sense,” Alan Feld, founder and managing partner of Israel-based Vintage Investment Partners, told Secondaries Investor. “There effectively was a “liquidity discount” in the private market. We felt this was a time to have a very high bar and be very cautious … We expect that over the next couple of years, valuations will go down considerably and there will be a great buying opportunity.”

Buyers do not plan to pounce quickly. On average, they expect their secondaries purchases to decline by about 30 percent over the next two months, according to the survey.

They also expect volume to drop by about 29 percent this year. Respondents predict overall market volume of about $60 billion in 2020 compared to a record $84 billion in 2019.