Want to get into EnCap Energy Capital Fund IX? Prepare to pay a 15 percent premium on the oil and gas exploration fund’s net asset value (NAV), judging by recent secondary-market data.
EnCap’s vehicle was one of 15 private equity funds that had stakes change hands for more than their NAV in the six months ending May 25, according to private-asset marketplace Palico. The firm surveyed limited partners who’ve recently bought stakes in closed funds, and has been tracking pricing for a year.
For the first time, the majority of stakes (58 percent) sold during the six-month period for 100 percent of NAV or more. A number of more established firms have reported similarly hot market conditions, including Credit Suisse and Preqin.
“Pricing is particularly good at the moment,” said Patrick Adefuye, Preqin’s head of secondaries, in a prior phone interview. He said the gap between the net asset value of the stakes and the discount is at its narrowest size historically.
Palico specializes in niche funds and small stakes, according to its pricing report. But a number of the funds that commanded premiums are run by the industry’s big names, including Carlyle Partners (for Carlyle VI and Carlyle Europe IV) and the Blackstone Group, for its fund VII. EnCap is likewise a major player in oil and gas private equity, closing its tenth Energy Capital vehicle at $6.5 billion in 2015.
Younger funds dominated the top of the pricing charts, with all of the 15 leaders dating from vintage years 2011 or later.
The reverse was also true. Limited partners in older funds accepted the deepest discounts for their stakes, including 80 percent of NAV for 2006’s JC Flowers II and a 10 percent write-down on Apollo Investment Fund VI from 2005.
“Looking at the entirety of the list, it clearly looks like secondaries don’t age like fine wine, and actually seem to lose value over time,” Palico said in its report. “However, tail-ends, funds that are at least nine years old and which typically have more limited upside than younger portfolios, show exceptional pricing compared to a few quarters back.”