The secondaries story that wasn’t

Recent reports about NASDAQ starting a trading platform for secondaries interests caused a stir – but appear to have been overblown.

In late April, reports started to surface about NASDAQ and KKR setting up some sort of electronic secondaries platform that would make private equity fund stakes available to retail investors.

The original article in the Wall Street Journal suggested other private equity firms were interested, too.

Buyout firms wanting to manage secondaries activity in their funds is nothing new, of course. Bain Capital and Oaktree Capital Management are among the firms with their own internal matching platforms for existing LPs to swap stakes, I’m told.

And electronic platforms for trading illiquid assets aren’t exactly a new development either; many have been set up over the past decade and most have floundered or failed to garner significant industry support.

But KKR and NASDAQ leading the charge for a new exchange caused a stir among primary and secondaries folks alike – and prompted a whole lot of questions as to how it would all work.

At least one international law firm even started a working group to examine the development in response to client inquiries.

But as the working group soon found, and a regulatory filing made clear, what KKR’s been plotting is a third party-managed feeder vehicle that will allow accredited investors to commit as little as $10,000 to gain access to its buyout funds. While there are mechanisms that will allow these investors to later sell their shares, this is not so much about creating a new secondaries exchange as it is about KKR testing the means and methods to broaden its investor base.

While this particular story turned out to be a bit of a red herring on the secondaries front, that’s not to say that some interesting new market tools could yet be developed.

But as my sources reminded me, the secondaries market remains relationship-based at its core. And it involves subjective valuations and transactions riddled with tax and regulatory complexities – all of which means an electronic solution is never going to be very straightforward.