When is the last time IPO exits comprised less than 1% of total exit volume from private equity funds worldwide? Let’s add a 55%+ decline in total exit volume year over year. Going for a trifecta, how about an 87%+ decline in SPAC M&A exit volume too. Each of these data points are NYPPEX estimates for private equity funds worldwide in the first half of 2022.
What’s ahead? For one thing, it seems obvious that investors should be prepared for distributions to dramatically decline in the near future.
Of course, over a long-term holding period, cyclical blips are to be expected from investments in private equity funds. However, when you consider that NYPPEX estimates over 60% of exit volumes in the 1H2022 were “GP to GP” transactions, the quality of this low exit volume is weaker than understood by investors.
At NYPPEX, we believe GP to GP transactions should be disclosed as a risk footnote in a fund’s quarterly report as they are a game of musical chairs, which will end badly for some private equity funds and their investors when the music stops.
A partial solution? Given that NYPPEX estimates secondary private equity funds worldwide held a record $140+ billion in dry powder as of December 31, 2021, we expect a massive increase in secondary sales from GP-led transactions ahead.
For further information, please contact [email protected]. This is the 2nd of a 5 Part Series of Private Market Commentaries from the 2nd Quarter of 2022.
Copyright 2022 Laurence Allen. All rights reserved. https://laurenceallen.com
Disclosure: This information is market commentary by Laurence Allen and not a solicitation of private securities transactions which may only be done through private offering documents and in jurisdictions where permitted. 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.
Private placements are illiquid, speculative and investors may lose their entire investment.
About NYPPEX Holdings
NYPPEX Holdings is one of the world’s leading providers of secondary liquidity and data services for interests in alternative funds. Its clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, family offices, private clients and their respective advisors worldwide.
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.
Its private securities are privately offered to qualified investors through NYPPEX, LLC. NYPPEX is regulated in the U.S. by the SEC and FINRA. Member FINRA, SPIC.
About Laurence G. Allen
Laurence Allen serves as the Managing Member of NYPPEX Holdings, LLC. Since 1999, he has been a pioneer in the development of secondary markets in private equity funds and private companies.
He has been a speaker at numerous private equity conferences worldwide, including the Institutional Limited Partners Association Spring Conference (Miami), Super Return Middle East Conference (Abu Dhabi), Dow Jones Private Equity Outlook Conference (New York), World Exchange Congress Conference (Barcelona), Private Company Stock Conference (Palo Alto), and Asian Venture Capital & Private Equity Conference (Hong Kong).
Mr. Allen has served on numerous advisory boards including the Wharton School, Bowery Mission and the U.S. Congress Business Council. His diverse civic interests have included the Metropolitan Museum of Art, Boys and Girls Club of Greenwich and Ducks Unlimited which presented him a Lifetime Achievement Award.
Prior to founding NYPPEX, Mr. Allen served in various positions with Merrill Lynch where he helped pioneer the development of secondary markets for commercial and residential mortgages. At Bear Stearns, he helped develop the secondary markets for private debt placements. Mr. Allen received a BS in Economics and MBA in Finance from the Wharton School at the University of Pennsylvania.