Volume in the secondary market for closed private equity funds soared last year as much as 47 percent with record annual aggregate value estimates in this opaque market ranging from $70 to $80 billion according to various sources. Given historically attractive pricing for sellers and the unprecedented sums earmarked for secondary purchases, record volume makes sense. The average transaction on the private equity secondary market stands at 102.5 percent of fund net asset value, according to a recent Palico marketplace survey (sent to members last month) – the highest level we’ve ever recorded. Meanwhile, estimates from industry intermediaries for committed but unspent capital in the secondaries market are at all-time highs of between $180 and $200 billion.

The typical transaction on the private equity secondary market is valued at 102.5 percent of net asset value in terms of mean, with the median at 101 percent, according to a Palico survey of limited partners who’ve successfully purchased stakes in closed funds over the last six months. This is the highest pricing Palico has recorded since we began tracking secondary transactions in March 2017. This latest survey covers 30 funds of all types from real assets to private debt, buyout and venture.

Liquidity may have been hard to come by for PE investors in the 90s, but almost thirty years down the road it has become a demand. Regardless of the numerous reasons LPs have cited for selling their stakes, one thing is clear, they are less eager to wait for returns. So one can ask: are LPs going schizo? They’ve been investing in the PE market for years knowing of its illiquid state and 10-year plus lifecycles, so is waiting a lost art? And especially, what is fueling their growing desire to cash out?

Shahram Seyedin-Noor is the Founder and General Partner of Civilization Ventures, a San Francisco-based venture capital fund investing at the intersection of health tech and synthetic biology. We recently caught up with Shahram to discuss his fund’s unique value proposition and his experience successfully leveraging the Palico marketplace.

Daniel Ibri is the managing partner and founder of Mindset Ventures Sao Paolo. We sat down with Daniel and discussed some of the pains of fundraising for emerging market funds looking to expand outside of the constraints of their own borders. In this Q&A he explains why Palico is an essential tool for small funds and how it helped attract new investors beyond Brazil.

Yet Palico offers a large variety of emerging market opportunities that can streamline the private equity investment process. Some two out of five primary and secondary investment opportunities among Palico’s listings are focused on the emerging markets of Asia, Africa, the Middle East and Latin America. Moreover, more than four out of five of those offerings are for funds of $250 million or less. They’re not only focused on dynamic family-run companies, but overwhelmingly on the more inefficiently priced small cap sectors of emerging markets. Primary and secondary emerging market opportunities also cover over 30 specialties, ranging from mezzanine finance in Mexico to impact investing in fast-growing Southeast Asian countries.

Altogether, the aggregate capital targeted or raised by primary and secondary opportunities listed on Palico’s digital marketplace amounts to $9.8 billion. Among the fundraisings, the majority have already held at least a first close on capital commitments - demonstrating traction among investors. Some two out of five emerging market fundraisings on Palico represent first-time vehicles, the vast majority run by veteran, but hungry managers, eager to prove themselves as independent operators. This is in the context of recent evidence that the average first-time fund outperforms the average later-generation vehicle.

By bringing fundraisings and secondaries to desktops and smart devices, along with a wealth of information on those opportunities, Palico gives limited partners and their advisors more time to discover, analyze and invest in highly promising, frequently hard-to-find funds. Palico fits seamlessly with all channels of capital commitment, yet its digital marketplace makes fundraisings and secondaries - covering all strategies and regions - more accessible and affordable.

Highlights:

Over time, of course, successful general partners running smaller funds tend to become larger general partners running bigger funds. A small, but significant subset of these managers experience the kind of explosion in demand over time and across fund generations that makes it difficult for investors to access their later, larger vehicles. This is yet another reason why limited partners - even the biggest - should maintain investment programs for smaller managers.

A particularly interesting academic paper that came out late last year indicates that PE-owned companies do better than non-PE-backed firms of similar size, purpose and profitability during downturns - a topic with plenty of relevance for fund managers and investors, given a near-record run of uninterrupted economic growth in the world’s major economies. In light of today’s record purchase price multiples, smaller funds, frequently specialists in uncrowded niches, or purchasers in the relatively neglected lower end of the buyout market, may do better than their larger counterparts in a downturn. Yet another reason why limited partners should consider smaller funds today.

Helping smaller, harder-to-find funds standout is Palico’s speciality. Fund offerings with an investment focus covering 179 of the world’s 195 countries are listed on Palico, with more than four out of five vehicles focused on investing in the particularly inefficient small cap and lower mid-market corporate sectors. Additionally, two out of five operate in specialist sectors including agriculture, credit, timber, mining, water, shipping and intellectual property; and another two out of five focus on newer regions for private equity investment in Asia, the Middle East, Africa, and Latin America. A majority of secondaries sold on Palico involve funds that raised $250 million or less from investors. Some 80 percent of transacted secondaries are for stakes worth $10 million or less - what we call ‘small secondaries.’

In 2017 limited partners invested $227 million in primary fundraisings and secondaries via Palico’s digital marketplace, overwhelmingly in smaller and more specialized funds. As average fund size grows amidst a record number of fundraisings, Palico’s digital marketplace helps primary fundraisings and small secondary offerings standout. Palico is making private equity ‘alternative’ again.

Four out of five second-hand fund transactions initiated in Palico’s digital marketplace revolve around offers for private equity fund stakes worth $10 million or less. Some 45 percent of secondary transactions on Palico involve stakes of $5 million or less. In the six years since Palico’s digital PE fund marketplace launched, stakes with a combined net asset value of $451 million have been listed on the platform, covering an ever-expanding range of strategies from buyout to credit.

Apart from specialists who have the requisite resources and connections, secondary selling and buying can be difficult. But on Palico, information from sellers is anonymously transmitted to buyers who’ve already expressed an interest in the fund or funds via wishlists. After receiving bids, sellers only reveal their identity to potential buyers if they choose to do so. For secondary buyers, Palico offers hard-to-find dealflow - and frequently hard-to-find funds - in just a few clicks.

Some 50 percent of secondaries transactions on Palico involve funds that raised $250 million or less from investors. These smaller funds tend to focus on relatively neglected, and potentially attractively priced, small cap assets. They also frequently specialize in niche investment areas and in newer geographies where there’s less competition.

In 2017 limited partners invested $227 million in primary fundraisings and secondaries via Palico’s digital marketplace, overwhelmingly in smaller and more specialized funds. As average fund size grows amidst a record number of fundraisings, Palico’s digital marketplace helps harder-to-find primary fundraisings and small secondary offerings standout, bringing them to the desktops and smart devices of interested investors the world over. Palico is making private equity ‘alternative’ again, even as the overall industry becomes mainstream.

Palico is not only a great place to find first-time private equity funds, it's a mecca for investors seeking to commit to promising spinoff teams. As erstwhile subsets of larger teams, spinoff groups are frequently specialists, active in less crowded sectors than the historic core of private equity - buyouts. Indeed, only 11 percent of Palico's spinoff fundraisings are focused on the buyout market. The variety of spinoff strategies on Palico includes private credit, turnaround, real estate and a host of growth niches. A third of Palico's spinoff fundraisings are also focused on emerging markets, far from the world's highly competitive money centers.

In today's mature private equity fund market, where a record 3,129 funds are seeking capital - some 42 percent more than just five years ago - it can be hard for limited partners to find the time to source and evaluate promising spinoffs, let alone the broader universe of first-time funds. Yet Palico's digital marketplace brings a wide choice of promising smaller and specialized managers of all types to the desktops and smart devices of limited partner firms in every region of the world. In 2017, those LPs invested $227 million in primary fundraisings and secondaries via Palico's digital marketplace, overwhelmingly in smaller and more specialized funds. Palico is making private equity 'alternative' again, even as the overall industry becomes mainstream.