The London Private Equity Futures and Options Exchange promises a “synthetic revolution” in private equity when it goes live June 30.
The exchange will provide an independent place for the world's largest institutional investors to take long or short positions on all major private equity funds, separate from existing primary and secondary markets, said Kishore Kansal, managing partner of PEFOX, recently in a news release.
Mr. Kansal noted that the idea for an exchange is not new; however, he believes PEFOX will succeed where others have failed for two reasons: because PEFOX is independent, and because the financial crisis raised investors' awareness of liquidity.
“After the financial crisis, investors in private equity really began to question the wisdom of being locked into a blind pool for eight years-plus, with little or no chance of liquidity,” Mr. Kansal said in the release. “Like it or not, we now live in a time of significantly higher volatility and this is something which investors can no longer ignore.”
Recent “transfers of economic interests,” where the returns or losses in a fund are transferred to a buyer while the seller retains nominal legal ownership of the fund, are “derivative(s) in all but name, and (go) beyond the technical boundary of what could have been achieved through a secondary sale,” Mr. Kansal said.
Reached by telephone, Mr. Kansal declined to comment beyond the news release ahead of the June 30 launch, when he said more information will be available. — Drew Carter
