T.I.P.

Secondary private equity started developing in the 1990’s in the United States after the growth in assets being invested in private equity funds.

Unlike the primary private equity market, the secondary private equity market allows for liquidating investments and exchanging financial products and underwriting that were placed or underwritten in the past.

The reasons for the existence of the secondary private equity relate to the following:

• concentrating strategies in a core business, such as pursuant to mergers, acquisitions, etc.;
• the need to find “block” solutions in packages of residual shares with respect to a specific fund;
• difficulties in divesting on the traditional M & A markets on the stock market, during positive periods for the shareholder;
• increased convenience for the fund, given the characteristics of the shares, in the sale (in the case of “block sales”) to another private equity operator compared to assignments to single trade buyers, or listing on the stock market
• the opportunity to sell liquid to a fund while raising capital for a future fund;

The secondary private equity market has evolved greatly since it started and has become a true sector of intermediation financing that is becoming increasingly important throughout the world.

The existence of the secondary private equity market is based on certain specific elements, including:

• the boom of investments in the primary private equity market;
  
• extended duration of private equity investments (closed funds with an average timeline of 7 - 10 years), which often conflicts with a fund’s need for a rapid way-out;
  
• illiquidity of investments and poor visibility of the “true” value of the shares on the market;
  
• interest of private equity operators in displacing blocks of residual shares;
  
• focus on certain shares that are considered to be more in line with the philosophy and practice of a private equity fund or structure.