The specter of evaporating liquidity and rising capital calls in light of the COVID-19 crisis may cause some asset owners to consider or even launch a sale in the alternative investment secondary markets.
The big question is how to set a price.
Extreme market volatility makes Dec. 31 valuations seem so long ago — and irrelevant, industry insiders say. Some asset owners also are starting to see an increase in capital calls. Many managers are using the capital to pay down subscription lines of credit as well as to shore up existing investments, although there is disagreement among industry experts on whether there will be a large increase in capital calls until later in the year or in 2021.
Meanwhile, secondary market buyers have little interest in portfolios exposed to certain industries such as hospitality, consumer-related, energy and transportation that had been attracting investor capital since the global financial crisis. Due to uncertainty about value, secondary market buyers are only interested in portfolios that are heavily discounted.
"We are seeing more LPs starting to ask for a sense of price for their funds, as they look to optimize their post-corona portfolios," said Cecilia Banares, Toronto-based administrative director of secondary market broker Setter Capital Inc. "That said, we expect the number of inquiries from LPs to increase markedly in the coming months, given many are still putting out fires elsewhere in their portfolios."
Some industry insiders say they have already seen some smaller portfolios and credit fund limited partnership interests being marketed on the alternative investment secondary markets.
There's been a major uptick in offers to sell real estate limited partnership interests on the secondary market," said Christy Gahr, Boston-based principal and real estate consultant at consulting firm Meketa Investment Group Inc.
"Thus far, sellers have largely been pension funds and foundations as they navigate the denominator effect and liquidity issues," Ms. Gahr said. "Activity has been across core and non-core real estate funds as many open-end core funds have gated redemption requests or offered low partial redemptions."