Pricing of Secondaries in Private Markets
Discounts to NAV do not equal Discounts to Fair Value
A subscriber of our newsletter, recently sent me a WSJ article. It discusses the “Big One-Day Windfalls” for secondary funds purchasing private equity (PE) stakes.
What are secondary funds:
The article cites a number of examples where secondary funds purchased Limited Partner (LP) interests at significant discounts to Net Asset Value (NAV) and subsequently marked the cost back up to the NAV immediately afterward, printing some insane returns overnight.
For example, the largest markup in the article came from the StepStone Private Venture and Growth Fund as of 12/31/2023. It had purchased an LP interest in the CNK Fund IV fund for $538,100 during Q4 2023 and marked it up at quarter-end by about 16x, to $8,741,092.
Some of the other markups in the article:
Let’s get this straight. A fund can purchase an interest in another fund at a 94% discount to Fair Value, and the next day mark it back up to the reported Fair Value? If you have been reading our newsletter long enough you probably know by now that we don’t take anything we read at face value. There is always more behind the story.