September 19, 2019

PE secondary market update Q3/2019 – pricing and volume

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In this edition of Multiplicity Insights we conclude that average discounts to NAV widened slightly by year-end 2018 for buyout, venture, and private equity fund-of-funds. Multiplicity’s Secondary Market Value Index indicates near-record pricing levels across buyout and venture capital. We also explain why, when one takes a longer-term, rational perspective, selling a top-quartile fund at a substantial premium tends to be a much worse deal than selling a bottom-quartile fund at a discount.

After soaring throughout most of 2018, public equities went through a correction at the end of that year. Private equity funds followed along, and fund valuations were only modestly affected by the public equity market correction.

Average discounts to NAV for buyout, venture, and fund-of-funds continue to narrow

The private equity market continues to be in rude health

Figure 1: Performance indices for average private equity funds, 2004 to 2018; source: Preqin, Bloomberg

In 2017, pricing in percent of Net Asset Value (NAV) had hit a new peak since the days preceding the global financial crisis. Despite undergoing a small correction last year, pricing remained strong in the historical context.

Market participants have not been able to agree on the cause of the slight dent. We believe that a higher proportion of very mature funds in tail-end situations, and potentially also the increase of lower quality names in the market, may have played a role, as well.

Average discounts to NAV for buyout, venture and fund-of-funds remain narrow

Figure 2: Secondary market pricing proxy index; source: Multiplicity Partners’ calculation using various publicly available and internal data sources

To determine the absolute value of the secondary market, we have again calculated the Secondary Market Value Index. It combines private equity performance data (Fig. 1) with the discounts to NAV as illustrated in the secondary market pricing proxy index (Fig. 2).

Not unexpected after what we stated above, we can observe record pricing levels in the third quarter of 2018, and an ensuing slight correction in the last quarter of that year.

We stand by our assessment: the factors for sellers are compelling. Our proprietary Secondary Market Value Index points to record pricing levels.

The case for selling private markets fund interests is as strong as ever

Figure 3: Secondary Market Value Index; source: Calculated using Preqin’s performance index and Multiplicity Partners’ secondary pricing proxy index

According to estimates by various market participants, and adjusted for our observations, the private equity secondary market volume set new records in 2018.

Cautiously extrapolating the USD 42 billion volume the market reached mid-year, we believe the industry is well on track to reach, or even surpass, the USD 73 billion mark again by the time 2019 concludes.

Secondary market volume set to hit record levels, again.

Figure 4: Global private equity secondary market volume; various sources


As a) private equity funds having posted strong returns, b) company valuations remain at elevated levels, c) discounts are tight in the secondary market and d) record amounts of dry powder have accumulated, it’s becoming challenging to argue against selling limited partner interests today.


You have reached the end of the first part of the paper. To continue reading the sections about NAV and venture, please download the PDF here.