Secondaries pricing climbs in H2 2010

The average bid price for buyout funds rose to about 90 percent of NAV in H2 2010, ending a year that recorded a record $20bn of secondary volume.

Pricing in the private equity secondaries market continued to increase in the second half of 2010, with venture capital transactions returning for the first time in months.

The average bid price for buyout funds rose to about 90 percent of net asset value in the second half of 2010, up from about 86 percent in the first half of 2010, according to research from Cogent Partners. Continued strength in pricing for mega buyout funds and energy funds specifically drove sales by both public pensions and financial institutions in what was estimated to be the “busiest year on record in the private equity secondary market,” as transaction volume surpassed $20 billion for the first time, Cogent said. Mega buyout and energy funds together accounted for over 75 percent of volume in 2010, according to the report.

“Given the rising public equity markets, it is not surprising that secondary pricing for private equity funds continued an upward trend during the second half of 2010,” Cogent Partners managing director Todd Miller said in a statement.

The average high bid for all funds marketed in the second half of 2010 was 84.3 percent of NAV, compared to 79.6 percent during the first six months of the year. Pensions and financial institutions, which accounted for just 5 percent of secondary sellers in 2009, comprised nearly 40 percent of sellers in the market in 2010. 

Milestone secondary deals in 2010 included Axa Private Equity’s acquisition of $1.9 billion of limited partnership interests from Bank of America in April.

In another surprising development, venture capital secondary funds – some of the most challenging to sell in recent years – returned to the market in the second half of 2010. Venture funds rose to 24 percent  of the funds in Cogent’s data set for the second half of 2010, compared to comprising just 2 percent in the first half of 2010.

“As many LPs continue to pare down their venture portfolios to a core set of managers, we expect that 2011 will see an increase in the number of venture funds in the market,” the report said.

The average high bid for venture funds the second half of 2010 was 69.7 percent of NAV.