Some investors have come to me lately with the same request. Sell my other profitable investments, I need cash. They put too much into private equity. Now they cannot get out of it and capital keeps being called. So the problem is real. I have seen it up close. The cure, I’m not so sure.
Then I read a pitch saying private markets used to make you wait at least 10 years for your money but hey, not anymore. The secondary market fixes that.
Why is the secondary market booming? The main market is jammed. Many sellers need cash. They are probably not selling because they found something better. If you are the one who has to sell, you take the price on offer. A market built on sellers who need to sell is not a reason to rush in. It is a reason to ask what they know.
Whatever marks still come from the people who own the assets. In a continuation vehicle, the manager sells the asset, helps set the price, then keeps running it with new fees.
Private banks and platforms are often paid handsomely when the client signs, not when the client gets his money back. Relationship managers have targets. The sale shows up this quarter. The outcome shows up in ten years. The incentive does the work.
I’m not against private markets or anyone. There are good deals out there. They are hard to find and they are rarely the ones being pushed hardest. The good ones do not need an aggressive sales campaign.
I’m against buying private markets because they are easy or probably too easy to buy. Read the terms before the high return projections. Ask one question before you sign: if I need cash in two years, what do I sell?
For my investors, the answer was everything else. You cannot buy liquidity out of an illiquid strategy.