“This requires skill from the GP; and I don’t care how strongly they argue, a GP cannot manage 100 companies. They just don’t have the skills, the resources or the sheer time to do it. If a GP is managing eight or 10 companies at different stages of their development – I can listen to that one. But 20 companies? They don’t have the breadth to do it.” Sometimes vendors will group a great asset with one or more undesirable ones as they move to clear their books. “The triage in a bad portfolio can take more time and effort,” Penn says. “You’ll spend way more time shutting down companies than trying to help your jewel.” Is the price right? Oliver Welsch-Lehmann, also a managing director at The Camelot Group LLC, says deals in which financial institutions are divesting LP interests from investment arms tend to feature intermediaries to help sellers get good prices. This makes pricing more efficient than in the direct market. But smaller deals, such as those coming from family offices and involving two or four direct investments, usually provide an opportunity to structure a “good” transaction. “Those are the rare situations where you can really add value as a buyer and maintain a good relationship.

You don’t want the seller to be embarrassed. You want everyone to walk away happy,” he says. Pricing trends in the secondary LP interest market are subject to broader market forces. In 2009, as managers waited for liquidity-stressed investors to relieve themselves of private equity commitments through the secondaries market, the median bid price was close to a 60 per cent discount to NAV, says Jake Burgess, partner at Quay Partners. Now, as global markets muddle along, the median bid price for LP interests is about a 10 per cent discount to NAV, he says. However, in a positive development for sellers, NAVs have not been static in the past two years but have increased as markets have recovered. This means bid discounts have become less aggressive as NAVs have increased. But this presents some problems to buyers. “The issue I’ve got is they’re substantially the same asset. When you look at the underlying private equity funds, they haven’t actually dealt with any of those assets,” Burgess says.

Frontier believes that proprietary deals, or at least those that are not offered to the broad market, provide opportunities to significantly influence pricing. “We think there’s much more of an opportunity to achieve discount prices, as well as the ability to look at more innovative ways of structuring these deals,” Alcock says. Hill says investors should also consider how substantially the LP interests on offer have been funded. “Investors want to see pools which are substantially invested rather than those which may be subject to other investments in the future and how that can affect pricing,” she says. However, early-stage secondaries – those funded by 50 per cent or less – can be attractive, because they offer bigger discounts compared to more fully-funded interests, Burgess says. But paying a smaller discount to NAV for a higher quality interest is a safer bet, says Michael Weaver at Sunsuper. “You’ll get a better return. You might not get it on day one – but over the threeto- five-year period you will,” he says.