Tullett Prebon wants to increase liquidity in secondaries

How does your platform, TP-AIME, work and what sets it apart from your competitors?

Tullett Prebon is a large global entity. We have offices in 29 locations around the world and we transact in 200 products. We already operate robust electronic platforms in other asset classes including commodities, foreign exchange, and credit and interest rate swaps. Launching the matching engine within secondaries is a natural progression for us.

TP-AIME has two components: first is price discovery. Second, it is a matching engine for bids and offers. Registered clients will use it for private equity, hedge fund, venture capital, real estate and energy fund interests.

Typically, the screen would have a host of buyers and sellers providing bid and offer pricing. The system will cross trades if prices match, with our brokers confirming final details of trades. Trade settlement will occur offline.

Some other platforms have focused on the social networking side of the business. They’re looking to match counterparties, while TP-AIME is built around trade pricing and bid-ask crossing.

Other platforms have launched in the past and never really took off and the market has become quite competitive, why is it different this time around? 

Some time back, attempts were made on having a captive system – all information online, including secured legal documents, and online trade execution. It may have been too early for that, considering the opaqueness and inefficiency in private equity markets. Eventually, the market will become commoditised but I think we’re still a ways from that.

With TP-AIME, we are giving end users pricing information in a transparent and clear fashion in order to generate liquidity. We hope it will also aid our clients with their risk management.

Why do you think participants in the secondaries market are ready to transact online despite private equity being traditionally a human-intensive business?

The secondaries marketplace can benefit from increased transparency and participation. It’s historically been a market mainly geared toward big players but matching engines like TP-AIME are facilitating the entrance of smaller limited partners, such as family offices, as potential buyers or sellers. Moreover, all LPs, however big or small, want to stay discreet as sellers. With our product, there’s always confidentiality.

The other point is that you can’t have only an electronic model. Since early 2009, we have specialized in voice brokering. Now, we’re a hybrid of electronic and voice. There are a lot of moving pieces and I do feel that the secondaries aren’t conducive to 100 percent electronic matchmaking, especially on the higher end of the market. It has always been and will remain a strong relationship business. TP-AIME is an evolution for LPs; it’s an added tool. It’s also a testament to how the secondaries market has matured in recent years.

Where is secondary pricing these days and do you worry at all about rising net asset value?

Pricing has been pretty healthy, thanks to distributions and initial public offerings. Buyouts have been robust. Generally speaking, some late-growth funds have also performed well. Early-stage venture capital has been compressed as has energy, buffeted by swings in oil prices. On the real estate side, pricing has become more selective now. Pricing is partly driven by the low interest rate environment. It’s not only for private equity secondaries; it’s across every asset class. It remains to be seen how pricing will hold up when interest rates rise.

Historically, all markets have benefitted from greater transparency and liquidity, and, intermediaries have a vital role to play in creating healthy liquidity. Look at the bond market or credit default swaps market; it was brokers who helped expand those markets to their current sizes. Hopefully, the same will happen to private equity in times to come. Clients will certainly feel more empowered as liquidity increases.