PE Key Trends Blog

How a "Fringe Idea" is Redefining PE Fundraising and Secondaries

Jun 30, 2017 9:52:04 AM

Tags: Palico In Focus, V2


Is an online marketplace a fringe idea? In private equity it was when Palico’s online marketplace for fundraising, secondaries and co-investment was launched five years ago - though at the time digital marketplaces were the mainstream for buying and selling everything from furniture to stocks.

Palico: A Major Catalyst for Change

A half-a-decade is an age in digital time, even in famously long-term private equity. Today, raising private equity money, and buying and selling PE secondaries online is an established, rapidly growing part of our industry’s landscape. As the first, largest and most widely recognized digital fundraising marketplace in PE, Palico is the principal catalyst for the shift.

LPs and GPs are Evaluating Opportunities and Closing Deals

Today, Palico has some 400 investable opportunities targeting over $64 billion, 2,800 limited partners from 1,800 firms, and 5,000 GPs - focusing on everything from buyouts to credit - from approximately 2,500 firms. On Palico, LPs and GPs from across the globe are evaluating opportunities on a daily basis and closing deals with each other weekly. When disruptive digital technologies gain such a solid foothold in an industry, change accelerates rapidly.

Investing the 19th Century Way

When Palico was founded, despite being in the midst of the digital age, GPs and LPs were conducting business with each other the same way financiers raised funds and invested in the early 19th century, face-to-face only. What puts a premium on the up close and personal in PE is the fact that in fundraisings investors are being asked to invest in blind pools holding no assets, while in secondaries they are investing in fund managers actively determining the future of their assets. The human element, whether managers have the “right stuff,” as Tom Wolfe would say, is crucial in PE in a way that it simply isn’t in markets where fund managers have no say in how the assets they own are managed - the case of virtually every other investment category in the world.

The Up Close and Personal Mixes with Digital

Palico’s breakthrough idea was that face-to-face meetings to evaluate partnership suitability, and online discovery, analysis and investment are not mutually exclusive. When traditional and digital methods are combined, the commitment process is streamlined for both LPs and GPs - both groups use fewer resources and cover more territory in terms of offerings and geographies, without leaving their desks. Though face-to-face meetings remain essential to the process, many fewer occur because both GPs and LPs easily separate the wheat from the chaff using an online marketplace like Palico. GPs list their funds or co-investments on Palico, where they’re seen by LPs with an expressed interest in a given strategy. LPs who register their interest in offerings, gain access to virtual data rooms where they download everything from private placement memoranda to limited partnership agreements.

Bringing Secondaries into the Digital Marketplace

For secondaries, Palico solves a fundamental problem for non-specialist buyers: it provides them with dealflow. Investors are interested in improving their liquidity and reducing their risk by investing in funds sold on the secondary market. Those funds hold assets that can be evaluated, and secondaries also return your investment, and any gains, in typically three to four years (as opposed to 10 years or more for primary fundraising). Yet apart from specialists who have the requisite resources and connections, secondary investing is very difficult to do without the benefits of an organized digital marketplace like Palico’s. Because secondary sellers provide needed deal flow, on Palico they pay zero commission, unlike in the typical transaction done through a specialized agent. Buyers, mostly non-specialists, who would otherwise be unable to access dealflow, are happy to pay Palico’s relatively small commission of 0.5 percent of transacted value - one fourth of what many specialist agents charge.

Palico Makes PE Accessible and Affordable

Palico is a disruptor in the classic sense: It’s altering fundraising and secondary sales with a digital approach that makes products more accessible and affordable. It’s making fundraising and secondaries democratic - open to big and small whether investor, manager, gatekeeper, placement agent or secondary advisor.

It’s great to push a button and see everything that’s out there. Palico helps me do my job better.

Sabina Eder, Director, Bank Austria