This Is the Most Valuable Private Equity Fund in the Secondary Market

Investors are bidding up prices of top-quality funds, according to Palico.

Illustration by II

Illustration by II

Private equity prices in the secondary market remain lofty, with Lindsay Goldberg’s fourth buyout fund trading at the highest level above net asset value, according to Palico.

Private equity funds priced at an average 101 percent of their net asset value during second half of last year, Palico said in a report released Thursday. During the same period, Lindsay Goldberg’s buyout fund from 2015 traded at 130 percent of NAV, the report shows.

Investors are paying more than the underlying value of funds partly because of increased competition for deals, Palico spokesman David Lanchner said in a phone interview. The online marketplace provider tracked 43 private equity funds globally, including buyout, growth, venture capital, real assets and credit, according to the report.

“It’s evident that investors are becoming a bit pickier and that’s leading to a situation where there is more competition for top-quality funds,” Lanchner said. Meanwhile, private equity firms are raising “monster” funds to invest in secondaries.

For example, Lexington Partners announced last week that it closed a $14 billion investment pool targeting secondary funds. And in July, Blackstone said it had raised $11.1 billion to invest in the secondary market.

The secondary value of Lindsay Goldberg’s buyout fund surpassed the highest-priced asset tracked by Palico during the last half of 2018: Sun Capital Partners VI. The Sun Capital fund was then trading at 126 percent of net asset value,

“It’s a great performing fund,” Lanchner said of Lindsay Goldberg’s vintage 2015 investment pool. “It’s already highly invested. And it’s also not an old fund. There’s still potential for a lot of capital appreciation compared with the typical older funds.”

KPS Special Situations Fund IV was priced at 118 percent of NAV during the last half of 2019, making it the second-highest priced fund tracked by Palico. The KPS fund has a vintage year of 2013.

The third-highest priced fund, Lone Star Fund X of 2016, traded at 117 percent of NAV during the last six months of last year, the report shows.

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According to Palico, funds at their “tail-end” tend to sell at wider discounts to net asset value than their younger peers. The oldest fund tracked by Palico — Friedman Fleisher & Lowe Capital Partners II with a vintage year of 2004 – traded at 93 percent net asset value during the last half of 2019. Similarly, Pharos Capital Partners III, which has a vintage year of 2005, traded at 95 percent of its net asset value over the same period.

“In addition to holding fewer assets – making them riskier bets – the more mature assets of tail-ends usually have less runway to appreciate than those of younger funds,” Palico said in the report.