"Secondary-Lite" The Only Secondary Getting Done
Secondary deals are basically frozen until year-end numbers come out, which buyers hope will be bad enough to convince sellers of the deep discounts we've been hearing about. While traditional secondary buyers lay in wait, another kind of buyer is stepping in: fund-of-funds managers. I’m told they’re buying what secondary firms refer to as “secondary-lite.” Meaning, they’re buying earlier stage LP interests. (It's like the difference between a pre-owned car and a used one.) Traditional secondary buyers prefer to buy funds that are at least 50% invested to avoid the J-curve. But fund-of-fund investors are now seeing discounted interests in funds they may have wanted a piece of as primary investors, and they’re taking advantage. Since it's earlier stage, they're still investing, mostly, in the track record of the fund's managers, the strategy, and the "possibility," rather than what secondary funds do, which is invest based on the performance of the fund's existing portfolio.
