Tail-end pricing rises amid wider drop

Tail-ends and funds of funds were the only strategies that buyers were willing to pay higher prices for during the first quarter of 2016, according to a report by advisory firm Triago.

Average top bids for the two strategies rose slightly to 88 percent of net asset value, up from 85 percent a year earlier, according to Triago’s quarterly report, published in June. Top bids for all other strategies fell, with 91 percent of NAV on average, down from 94 percent.

“You had a third quarter where net asset values were down and a lot of people didn’t want to pursue sales with the idea in mind that a lot of pricing would be based on that,” David Lanchner, a spokesman for the firm, told Secondaries Investor. In trades that do go through, limited partners often feel they have less leverage to sell when pricing is based on a dip in the market, he said.

Tail-ends – funds that are at least nine years old – rose to 28 percent of all sales by value year-to-date until 16 May, up from 18 percent for the same period last year, the report notes. This is likely to rise to 40 percent in the next two years, reflecting the record fundraising years between 2005 and 2008, longer hold periods for investments and steadily rising pricing for tail-ends.

US large buyout funds had the biggest drop, with top bids of 96 percent, down from a 1 percent premium to NAV on a year-on-year basis. Venture capital funds had the lowest top bids with 85 percent of NAV, down from 88 percent.

Source: Triago.