The average pricing of the most sought-after funds, relative to all funds, differs materially across different types and vintages, according to Setter Capital’s secondary market pricing report for the first half of 2014. This variance is most pronounced among venture capital funds.
The most sought-after funds in the large buyout space tend to be well-known names such as Blackstone and Apollo that raise larger funds, with larger limited partner bases that attract more buyers and therefore stronger pricing.
“For example, if you are selling sought-after funds you’ll get one set of pricing. Whereas, if you’re selling a name that is not as widely desired, you’ll find pricing to be potentially materially lower,” said Robert McGrath, co-founder of Setter.
The ‘most sought-after’ funds are ranked by Setter and are based on the firm’s liquidity rating.
Setter also observed differences in the variability of pricing in terms of the range of top bids for each fund, within a specific fund type and vintage. For example, top 2006, 2007 and 2008 venture capital funds were priced in a range of 85 percent to 110 percent of NAV – tighter than the 55 percent to 110 percent range for all VC funds.
“Buyers’ views on specific venture funds vary widely compared to LBO funds which are much easier to underwrite and the buyers feel more certain about exit valuations relative to VC funds,” said McGrath.
These differences, according to Setter, mean the pricing reports do not reflect sub-trends around how different vintages price nor how top funds price versus other funds.
McGrath said the best method to objectively measure pricing in the secondaries market is to take into consideration how NAV has changed over time with respect to the valuation of the underlying assets. Interim distributions must also be factored in to give an accurate reflection of where pricing is in market.