Premium
Private equity secondaries: Opening the liquidity tap
Author(s) -
Burdel Sebastien
Publication year - 2009
Publication title -
thunderbird international business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.553
H-Index - 37
eISSN - 1520-6874
pISSN - 1096-4762
DOI - 10.1002/tie.20297
Subject(s) - private equity , club deal , private equity secondary market , private equity firm , private equity fund , private investment in public equity , portfolio , business , finance , equity capital markets , market liquidity , equity (law) , secondary market , equity risk , economics , political science , law , stock exchange
Abstract Private equity is an illiquid asset class. The extended holding period for private equity—averaging four to five years—attracts investors, as fund managers are able to avoid the volatility that negatively affects the public equities. However, the secondary market has emerged as a tool that enables limited partners in private equity funds to manage a private equity portfolio flexibly despite its intrinsic illiquidity. This article discusses in great detail the scope of secondary transactions, discussing how the subsegment has evolved over time from the straightforward purchase of limited partnership interest to the more elaborate transactions involving structural creativity and complex problem solving for sellers. It is concluded that the growth in secondaries brings liquidity to the asset class and thus makes private equity a more compelling investment proposition. As such, the secondary market will continue to be a key driver for growth of the private equity industry. © 2009 Wiley Periodicals, Inc.