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From Humble Beginnings – Private Placement Secondaries Coming of Age
2012
From Humble Beginnings – Private Placement Secondaries Coming of Age
Page | 2
Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Overview
Liquidity has always been king, though we’ve tended to forget this in time of extreme bull markets.
Take, for example, 2004‐2007. During that period of unprecedented growth, investors of all shapes and
sizes plowed hundreds of billions of dollars into hedge funds, funds of funds and private equity. Then,
2008‐2009, and the great rush for the exits.
For much of the past 3 years, at a time of tight trading ranges, low volume and high volatility, a once‐
obscure corner of the market has asserted itself. Private‐placement secondary trading has found a
proper home among industry players who have become keenly aware that liquidity across asset classes
is crucial to survival.
Since 2006 secondary trading of private placement shares, specifically hedge funds, fund of funds,
private equity and their derivative side‐pockets & SPVs, has grown to an estimated $65B in annual
notional volume. That number is expected to grow 125% during the next 12 months to $146.25B,
becoming 37% of total Bank Debt Secondary notional volume ($400B1) and continuing to expand over
the next four years. Already there are more than a dozen private brokers providing liquidity to
previously immovable positions.
While initially relegated to the disposition of SPV’s, Liquidating Vehicles and Side Pockets, secondary
trading has grown to provide wholesale liquidity across all funds, not just those in distress. In fact,
results from our survey indicate a new‐found desire by institutional investors to trade private
placements on the margin and better manage their exposures within the asset class.
Neither is trading relegated to funds of managers no one would recognize. One need only peruse any
broker’s indication sheet to find household names like Blue Mountain, Caxton, Canyon Capital, Citadel,
Cerberus, Elliott, Fortress, GoldenTree, King Street, Marathon, Och‐Ziff, Silverpoint, and TPG Axon, to
name a few.
The importance of liquidity when campaigning for long‐log vehicles also cannot be understated, as
evidenced by recent developments at The Carlyle Group2. In March, to help facilitate the raise on its
latest 10‐year, $10B buy‐out fund, Carlyle was pushed to introduce its first‐ever, self‐sponsored qualified
matching program. The program has linked up such venerable PE secondary buyers as Goldman Sachs,
Credit Suisse, Coller, Landmark and Partners Group to pledge liquidity for limited partners beyond the
third year of investment for up to 33 percent of their stake. The program does have its limitations, as it
can be terminated at any time, none of the secondary bidders is obligated to participate, and Carlyle still
retains right of refusal on any transfer of interest.
1 Per Loan Syndications and Trading Association, Inc. (the "LSTA") website
2 Per Bloomberg PE Brief 3.14.12
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
In response to trends on the burgeoning interest in the secondary market, we have witnessed rapid
growth in the number of secondary brokers and online qualified matching systems over the past few
years. This growth has been fueled not only by increased demand but a desire among brokerages to
replace declining revenue from their equity and fixed income trading operations with one of the few
high‐commission, high‐margin markets available.
Institution Type Deals Started
Est. Annual
Notional Volume
The ParkHill Group a
subsidiary of Blackstone
Private Negotiation
Institutional Sales
Person
HF Secondaries, SPVs &
Side Pocket Liquidations 2009 $10B
Second Market Online Dutch Auctions Private Securities “Reg D” 2006 $1B
Cogent
Private Negotiation
Institutional Sales
Person
PE/VC Secondaries, SPVs
& Side Pocket
Liquidations
2006 $1B
Tullett Prebon
Private Negotiation
Institutional Sales
Person
HF Secondaries, SPVs &
Side Pocket Liquidations 2010 $300M
Deutsche Bank
“DbRemarket”
Private Negotiation
Institutional Sales
Person Driven”
HF Secondaries, SPVs &
Side Pocket Liquidations 2011 $25M
NYPPEX
Private Negotiation
Institutional Sales
Person
PE/VC Secondaries, SPVs
& Side Pocket
Liquidations
1999 $5‐$10B
CitcoBank
Private Negotiation
Institutional Sales
Person
SPVs & Side Pocket
Liquidations 2010 $100M
Campbell Lutyens & Co, UBS
AG , Hedgebay, Cattegatt,
Tradition
Private Negotiation
Institutional Sales
Person
Hedge, FoF, PE/VC
Secondaries, SPVs & Side
Pocket Liquidations
Each over has 10+yrs
of operation $5‐$15B
BritDAQ, Alternativa, Gate
Technologies & Xpert
Financial , Wake2O
Online Dutch Auctions Private Securities “Reg D” 2009‐2011 n/a
Still by all accounts most investors in private placements are dealing directly with one another in the
secondary space. The fledgling secondary market is also still hamstrung with a mismatch of buyers to
inventory, with reports from several brokers indicating an average ‐39%3 (on the offer) and an average ‐
3 Per Alternative Lab report: June 2012
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53%4 (on the bid). This implied spread of ‐14%, coupled with limited secondary market price discovery
and a sense that veteran secondary buyers are “just predatory” in their approach, has kept inventory on
the shelf. Overall, however, the premium/discount as measured by several brokers5 has shrunk
markedly since the peak panic of 2009 when it was ‐83.9% (on the bid) to ‐54% (on the offer) as of May
2012.
As a result of this overall improved performance, several brokers report an increasing number of completed transactions during the past 12 months. One attributed this to a greater supply making its way onto the market as fund performance has improved – and write‐downs better concealed in overall portfolio performance. Despite this, capital‐raising for dedicated secondary vehicles has hit an all time high, Bloomberg reports
that so far in the first half of 2012, $14.3B in new PE Secondary Capital has been raised, which is 8.6%
percent of the total new PE commitments raised.
The following is our league table of the leading secondary dedicated managers, the types and sizes of
deals they look for and size and number of fund they currently operate.
Institution Type Deals AUM / Vehicles
Harbourvest FoF – Private Equity & Co‐
Investor
PE/VC Secondaries, SPVs &
Side Pocket Liquidations
$30+B – Seven dedicated
vehicles comprising the
“Dover” line
Deutsche Bank FoF ‐ Hedge & Private Equity,
Co‐Investor
HF Secondaries, SPVs & Side
Pocket Liquidations
$500M – Startup JV with
Rosebrook Capital announced
January 2012
Lexington Capital
Partners
Dedicated – Private Equity
Secondary Firm
PE/VC Secondaries, SPVs &
Side Pocket Liquidations
$25B – 8 dedicated vehicles
Coller International Dedicated – Private Equity
Secondary Firm
PE/VC Secondaries, SPVs &
Side Pocket Liquidations
$20B – 9 dedicated vehicles *
Just closed latest $5.5B fund
– June 2012
Partners Group AG FoF Private Equity, Co‐Investor,
Secondary Firm
PE/VC Secondaries, SPVs &
Side Pocket Liquidations
$30B Firm AUM / $9B in
Secondaries dispersed among
7 vehicles
Gottex FoF ‐ Hedge Fund & Private
Equity
HF Secondaries, SPVs & Side
Pocket Liquidations
“Dealing Prop Book”
$7Billion – No dedicated
funds both Equity & Credit
books participate
4 Per Alternative Lab report: June 2012
5 Per Tullet Prebon, HedgeBay, Tradition Securities & Cattegatt
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
AXA, Pinebridge,
Greenpark
FoF ‐ Hedge & Private Equity,
Co‐Investor
HF/ PE /VC Secondaries, SPVs
& Side Pocket Liquidations
Combined $12.1B in
dedicated secondary vehicle
AUM
Lazard & Permal FoF ‐ Hedge Fund & Private
Equity
HF Secondaries, SPVs & Side
Pocket Liquidations
Combined $900M in
secondary only AUM
Credit Suisse AM FoF ‐ Hedge & Private Equity,
Co‐Investor
HF/ PE /VC Secondaries, SPVs
& Side Pocket Liquidations
$10B – 2 dedicated vehicles
Trading secondary private placement interests is also clearly a strategy that pays off, with Permal Hedge
Fund Opportunities II Ltd. generating a net absolute return of 34% since its inception on June 30, 2009.
This ranks the Permal fund fourth among 86 funds formed in Q3 2009 in terms of inception‐to‐date
return, according to InvestHedge.
All these positive media signals prompted us to question: What is really going on? During the past two
months we conducted a survey, the results of which are below. We have purposely withheld
commentary and opinion on the results, and will leave it up to each of you to determine what all this
means. We would be happy to discuss the results and engage anyone in a dialogue regarding what we
think is a burgeoning over‐the‐counter marketplace.
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Survey Highlights: We polled over 17,000 individuals and received responses from 489. Our responders represent a gross
$416.7 Billion in investable capital, with an average $462 million exposed to alternative product.
55% of respondents indicate they have traded a private placement interest at least once
100% of respondents who have traded a private placement interest at least once say they’ve
traded a hedge fund interest
60% of respondents who have traded a private placement interest at least once say the average
time to complete the transaction was 90+ days, an indication that the process is clearly still
encumbered by prehistoric execution and settlement workflow
46.8% of respondents who have traded a private placement interest at least once say they have
dealt directly with the counter‐party. Among respondent who say they have used brokers,
HedgeBay the Bermuda–based securities firm tops market share with 42.8% while Tullett
Prebon, Credit Suisse, Gottex, and Park Hill report an average 25.8% utilization rate
Notional ticket size for a secondary trade of a private placement interest is predominantly in the
$2,000,000 to $5,000,000 range with an average 40.1% response. However 25% of respondents
indicated they’ve traded notional size greater than $5,000,000
Only 20% of respondents who have traded a private placement interest at least once say they
were denied transfer of interest by the general partner or director(s) of the fund
54.5% of all respondents say the principal motivation behind a trade would be the ability to add
to an existing position at a discount. Additionally, 36.3% say the ability to enter a “closed” fund
would be the #2 driver behind a trade. Nearly 30% of all respondents indicated that an internal
or personal, asset‐liability problem would force them to do a trade
55.0% of all respondents say they have either paid or would expect to pay between 100bps and
125bps of notional to a broker
67% of all respondents say they routinely source funds with less than 24 month lockup periods.
However, 44% of respondents say that lockup also is a less relevant factor nowadays, with
return, yield, and strategy sustainability being important to them
56% of all respondents they have or would take advantage of soft‐lock provisions if needed
78% of all respondents say the seldom negotiate custom liquidity terms
89% of all respondents say they find monthly liquidity as the most attractive, while 78% said
semi‐annual and annual liquidity terms where the least attractive
57.1% of all respondents say they have or would buy UCIT/SICAV product, and 28.5% say ETF’s
would serve as a viable liquid beta alternative
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Survey Results The following tables and charts depict the statistical findings of our survey and how we conducted it:
General Survey Statistics
# %
Individuals Polled 17785
Individuals Who Reviewed the Survey 2,673 15.03%
Individuals Responded to the Survey 489 2.75%
Anonymous Responses 65 13%
Partial Responses 31 6%
Respondents from within the Unites States 220 45.0%
Respondents from outside the Unites States 269 55.0%
Survey Start Date 5/31/2012
Survey End Date 7/11/2012
Survey Duration (Days) 41
Approximate amount Discretionary Assets (millions)
Gross Amount all Respondents $416,772
Average $852
Hi $10,000
Lo $12
Percentage (%) Allocated to Alternatives (HF, FOF or PE) ‐ Aggregate
% and $ (millions)computed based upon responses
Average 54.3% $462.80
Hi 95% $9,500.00
Lo 9% $1.08
Number (#) of managers you are exposed to?
% and $ (millions) computed based upon responses
Average 76.7 $6.03
Hi 500 $19.00
Lo 5 $2.40
Number (#) of funds you are exposed to?
% and $ (millions) computed based upon responses
Average 105.5 $4.39
Hi 600 $15.83
Lo 12 $0.09
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Please tell us what type of entity you represent.
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
Fund of Funds 20.0%
Private Bank 25.0%
Private Pension 15.0%
Wealth Manager / RIA 15.0%
Family Office 10.0%
Endowment 10.0%
Public Pension 4.5%
Not‐for‐Profit / Charity 0.5%
Sovereign Wealth Fund 0.0%
20.0%
25.0%
15.0%
15.0%
10.0%
10.0%4.5%
0.5% 0.0%
Please tell us what type of entity you represent.
Fund of Funds
Private Bank
Private Pension
Wealth Manager / RIA
Family Office
Endowment
Public Pension
Not‐for‐Profit / Charity
Sovereign Wealth Fund
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Have you ever traded in the secondary market?
Response Ratio
Yes 55%
No 45%
Total 100%
What did you Trade?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
Hedge Fund Interest 100.0%
SPV or Side Pocket 28.5%
Fund of Fund Interest 14.2%
PE/VC Fund Interest 14.2%
Other 0.0%
55%
45%
Have you ever traded in the secondary market?
Yes
No
100.0%
28.5%
14.2%
14.2%
What did you Trade?
Hedge Fund Interest
SPV or Side Pocket
Fund of Fund Interest
PE/VC Fund Interest
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
What was the average time to do a trade?
% is percent of the total respondents selecting the option. Note: Only one selection per response was permitted Response Ratio
15‐30 days 10%
30‐45 days 10%
45‐60 days 10%
60‐90days 10%
90+ days 60%
Total 100%
10%
10%
10%
10%
60%
What was the average time to do a trade?
15‐30 days
30‐45 days
45‐60 days
60‐90days
90+ days
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
What notional size tickets have you traded secondary?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
2,000,000 ‐ 3,000,0000 47.5%
1,000,000 ‐ 2,000,0000 44.5%
4,000,000 ‐ 5,000,0000 43.8%
100,000 ‐ 500,000 37.5%
3,000,000 ‐ 4,000,0000 28.9%
500,000 ‐ 1,000,000 25.0%
5,000,000 + 25.0%
47.5%
44.5%
43.8%
37.5%
28.9%
25.0%
25.0%What notional size tickets have you traded secondary?
2,000,000 ‐3,000,0000
1,000,000 ‐2,000,0000
4,000,000 ‐5,000,0000
100,000 ‐500,000
3,000,000 ‐4,000,000
500,000 ‐1,000,000
5,000,000 +
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Have you ever used any of the following brokers?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
Dealt Direct (No Intermediary) 46.8%
Hedgebay 42.8%
Tullett Prebon 28.5%
Credit Suisse 26.4%
Gottex 22.4%
The ParkHill Group (Blackstone) 18.9%
NYPPEX 16.8%
Second Market 14.2%
Tradition Securities 14.2%
Cogent 12.5%
UBS 4.8%
Deutsche Bank "DbRemarket" (0%) 0.0%
Gamma (0%) 0.0%
Citco Bank (0%) 0.0%
46.8%
42.8%
28.5%26.4%
22.4%
18.9%
16.8%
14.2%
14.2%12.5%
4.8% 0.0%
0.0%
0.0%
Have you ever used any of the following brokers?
Dealt Direct (No Intermediary)
Hedgebay
Tullett Prebon
Credit Suisse
Gottex
The ParkHill Group (Blackstone)
NYPPEX
Second Market
Tradition Securities
Cogent
UBS
Deutsche Bank "DbRemarket" (0%)
Gamma (0%)
Citco Bank (0%)
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
What fee(s) on notional have or would you expect to pay a broker?
% is percent of the total respondents selecting the option. Note: Only one selection per response was permitted Response Ratio
100bps 30.0%
125bps 25.0%
50bps 15.0%
25bps 10.0%
No Responses 10.0%
150bps 5.0%
Other 5.0%
75bps (0%) 0.0%
Total 100%
Has a fund ever denied you transfer of interest?
% is percent of the total respondents selecting the option. Note: Only one selection per response was permitted Response Ratio
Yes 20%
No 20%
No Responses 60%
Total 100%
Key Comment: "Several funds we're exposed to have adopted Rights of First Refusal "ROFR" provisions, this has complicated some of our liquidations"
30.0%
25.0%
15.0%
10.0%
10.0%
5.0% 5.0% 0.0%
What fee(s) on notional have or would you expect to pay a broker?
100bps
125bps
50bps
25bps
No Responses
150bps
Other
75bps (0%)
20%
20%60%
Has a fund ever denied you transfer of interest?
Yes
No
No Responses
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
What was or would be a rationale for trading in the secondary market?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
Add to an existing position at discount 54.5%
Be able to enter closed funds 36.3%
Internal ALM issues force sale 29.2%
Rebalancing (weights & exposures) 26.8%
Other 27.2%
Underlying Fund in Distress 18.1%
Others proactively approach with a suitable offer 9.0%
Key Comment: "One man's trash (can be) another man's treasure".
54.5%
36.3%
29.2%
26.8%
27.2%
18.1%9.0%
What was or would be a rationale for trading in the secondary market?
Add to an existing position at discount
Be able to enter closed funds
Internal ALM issues force sale
Rebalancing (weights & exposures)
Other
Underlying Fund in Distress
Others proactively approach with a
suitable offer
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
To gain a little further perspective on the mindset of our survey takers, we also asked a series of
questions regarding liquidity preferences, sources of advice and what new liquid alternative products
they may be considering for investment. The following are their responses:
Please rate your general means of investing and sourcing advice?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Routinely Sometimes Seldom
Consultant 30% 10% 60%
Funds of Funds (either HF or PE) 20% 40% 40%
Direct Investing (no Fund of Funds) 80% 10% 10%
Separate Accounts 20% 30% 50%
Self‐Directed (no consultants) 60% 20% 20%
Affiliate Product Provider 10% 30% 60%
Placement Agents and Prime Brokers 10% 50% 40%
0%
20%
40%
60%
80%
100%
30%20%
80%
20%
60%
10% 10%
10%40%
10%
30%
20%
30%
50%
60%
40%
10%
50%
20%
60%
40%
Please rate your general means of investing and sourcing advice?
Seldom
Sometimes
Routinely
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Tell us about your general liquidity preferences .
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Routinely Sometimes Seldom
Invest long lock vehicles (>36mo) 22% 44% 33%
Invest short lock vehicles (<24mo) 67% 33% 0%
Routinely negotiate custom liquidity 22% 0% 78%
Take advantage of Soft‐Locks 33% 56% 11%
Opt for higher fee‐ short lock options 22% 44% 33%
Doesn't factor (returns, strategy & sustainability only) 44% 33% 22%
Key Comment: We expect notice period to match underlying instruments. I find it hard to understand Managers holding on to Quarterly liquidity. This effectively means the manager should be able to liquidate his/ her entire book four times a year on a relatively short notice.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Invest long lock vehicles (>36mo)
Invest short lock vehicles (<24mo)
Routinely negotiate custom
liquidity
Take advantage of Soft‐Locks
Opt for higher fee‐short lock
options
Doesn't factor
(returns,
stategy & sustainability
only)
22%
67%
22%33%
22%
44%
44%
33%
0%
56%
44%
33%
33%
0%
78%
11%
33%22%
Tell us about your general liquidity preferences
Seldom
Sometimes
Routinely
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
What liquidity cycle is most attractive to you and your group?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Most Somewhat Least
Monthly 89% 0% 11%
Quarterly 22% 67% 11%
Semi‐Annual 11% 11% 78%
Annual 11% 11% 78%
Key Comment: Illiquid instruments should be in funds that have longer notice period, NOT less periodic options to get out funneling clients to run for the door 1, 2 or 4 times a year.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Monthly Quarterly Semi‐Annual Annual
89%
22%11% 11%
0%
67%
11% 11%
11% 11%
78% 78%
What liquidity cycle is most attractive to you and your group?
Seldom
Sometimes
Routinely
From Humble Beginnings – Private Placement Secondaries Coming of Age
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Copyright – All Rights Reserved, Simplify, LLC © 2012 – 2017, all other names and rights belong to their respective owner, no affiliation or relationship is implied. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy.
Do you own any of the following liquid beta product?
% is percent of the total respondents selecting the option. Note: more than one selection may have been made Response Ratio
ETFs 28.5%
Registered Hedge Funds ('40Act) 14.2%
UCITS /SICAVs 57.1%
Index or Replication Products 14.2%
Conclusion The past few years has heightened investors’ awareness of their liquidity needs. Faced with a never‐before‐seen deleveraging that may well last years, if not a decade, and more allocations in asset classes with long‐term lock‐ups, many investors have been looking for new solutions to enhance the overall liquidity of their portfolios. However, despite it all investors refuse to sacrifice expected returns, especially in the post‐credit crisis, low‐yield environment, and continue to find hedge and private equity funds the most viable solution. With liquid beta, ’40 Act funds, and separate accounts all either costing too much, returning too little or simply being too much of a pain operationally we don’t see this trend 6 changing. But as our results indicate, gross inefficiencies in the offering, pricing, and settlement of secondary trading remain a major impediment to the market’s overall growth.
6 Credit Suisse 2012 Survey of Global Investor Appetite ‐ Alternative Routes: For all other alternative formats, such as closed‐ended hedge funds and replication products, over 70% of respondents have no allocation or plan to allocate. Ucits: only 27% of investors plan to increase allocation or are conducting research on allocation this year, down from 40% last year.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
ETFs Registered Hedge Funds ('40Act)
UCITS /SICAVs Index or Replication Products
28.5%
14.2%
57.1%
14.2%
Do you own any of the following liquid beta product?
From Humble Beginnings – Private Placement Secondaries Coming of Age
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About PortfolioCentriX (a Simplify LLC company) Simplify, LLC is a provider of innovative trading and risk solutions to funds of funds, pensions,
endowments, wealth managers, family offices, brokers, and consultants.
Our flagship product PortfolioCentriX™ supports the full life cycle of the alternative investment process,
including; Screening & Peer Group Analysis, Trading, Multi‐Currency Profit & Loss, Process Automation,
Risk Analytics, Document Management, Meeting and Due Diligence control, and Reporting across all
forms of onshore, offshore, private and registered vehicle structures.
About the Author Brian Shapiro founded Simplify LLC with the sole intent of improving investor
capability through the use of technology.
Prior to Simplify, Brian was founder & president of CarbonBased Consulting,
the leading provider of strategic business, operations and technology
consulting services to the investment management firms in North America,
Europe and Japan for nearly 12 years. CarbonBased Consulting was sold in
2007 to KPMG, and Carbon360 Research LLC the research arm was sold in
2009 to Opalesque Media.
Prior to founding CarbonBased, Mr. Shapiro was a Principal and Director at Data Exchange Inc. the asset
management industry’s first provider of an integrated and relational database supported portfolio
accounting and trade order system called WinDx. Advent Software, Inc., acquired the company in the
spring of 1995, and WinDx later became Advent Software’s flagship product Geneva.
Prior to Data Exchange Brian spent four years with Lehman Brothers in New York, initially as a research
analyst and later as Associate Portfolio Manager guiding equity technology investments for the Lehman
Growth & Income Fund with $2.5B AUM. Mr. Shapiro also served as a Researcher and Developer at
Quantitative Analysis Services, Inc., from 1988 through 1991.
Brian is frequent lecturer and author. He has authored or co‐authored in excess of 150 papers on Due
Diligence, Operational Risk & Governance, Investment Management Operations, Buy‐Side Knowledge
Management and Effective IT Management and Development. He is routinely published or quoted in
such publications as the New York Times, the Wall Street Journal, the Financial Times, CNN, Forbes,
Reuters, Bloomberg, Global Custodian, Hedge Fund Alert and Securities Industry News. Brian has
presented at over 100 industry conferences and has guest lectured at Yale University on multiple
occasions during the past two decades.
Inquiries For more information please visit the PortfolioCentriX web site www.portfoliocentrix.com or please
contact: Brian Shapiro, Managing Member, Simplify LLC 666 Fifth Avenue ‐34th Floor – New York, NY
10130 or Direct (646) 964‐4684, Mobile: (917) 414‐5786, & Email: bshapiro@simplify‐llc.com