NYPPEX: Secondary Bid-Offer Spreads to Remain Wide as Private Equity Funds Reluctant to Write Down Assets
July 25, 2023 New York, NY (PRWEB) July 26, 2023 -- NEW YORK, NY- July 25, 2023 – NYPPEX Holdings announced its outlook that secondary market bid to offer price spreads will likely remain historically wide for LP interests in private equity funds and securities in private companies, as private equity funds in general have only slightly written down net asset values.
NYPPEX estimates that secondary investors’ institutional bid indications will remain in a range of approximately 80 to 85 (% of NAV) on average for LP interests in private equity funds worldwide as compared to 90 to 95 on average prior to December 2021. According to several institutional investors, many general partners have only slightly written down the value of their assets, kept them flat or marked them up in 2022 and through June 30, 2023.
To illustrate, one private REIT, whose portfolio consisted mostly of residential real estate in the South and West regions of the U.S., only slightly wrote down its net asset value by approximately 1% vs. two comparable publicly traded REITs each of whom experienced approximately 19-25% declines in their stock prices for the 12-month period June 30, 2022 through June 30, 2023.
Although changes in a private fund’s net asset value are not perfectly comparable to changes in a public fund’s stock price, we see examples where secondary buyers required big discounts to public companies’ recent stock valuations.
For example, in March 2023, a well-known private equity fund sold a 10% stake in a publicly traded company at a price of $22.80 for approximately $300 million, which represented a shocking 70% discount to the company’s IPO closing price of $76 two years earlier in February 2021. It seems the secondary investor was justified in requiring a 70% discount, as the company’s stock price subsequently closed lower at $19.26 on July 20, 2023.
This may be a good time for investors to seek a secondary market pricing report for their private equity funds or direct investments portfolio from an independent party.
About NYPPEX Holdings
Established in 1999, NYPPEX Holdings provides secondary liquidity solutions, valuation and sub-advisory investment management services as an independent consultant to private capital funds, hedge funds and their investors worldwide.
Clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, family offices, private clients, and their respective advisors worldwide. Fund strategies include secondaries, buyout, venture, real estate, private debt, infrastructure, turnaround, and natural resources.
Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service as a Qualified Matching Service for private partnerships though a private letter ruling under internal Revenue Code §1.7704. The NYPPEX QMS assists private equity funds meet the requirements of a QMS safe-harbor exemption under IRS §1.7704, which helps ensure regulatory compliance and avoid an adverse taxable event when permitting higher volumes of secondary interest transfers annually.
Disclosure: The information herein is a market commentary and is not advice or a solicitation of private securities transactions. Investors should not rely on the information in this commentary as the basis for making investment decisions. This commentary is provided for informational purposes only. You are strongly encouraged to consult with your own independent advisors regarding any issues discussed in this commentary.
For more information, please visit http://www.nyppex.com or contact mailto:[email protected] [[email protected] __title__ null].
Larry Allen, NYPPEX Holdings, LLC, http://nyppex.com, 1 2039129265, [email protected]
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