There seems to be a misconception among non-EU alternative fund managers that Europe is a complex and closed market for raising fresh capital.

Those managers are being advised that reverse solicitation is no longer an option following the August 2021 changes to the AIFMD Marketing Rules. This is rightly so in our opinion, as it should never have been considered a marketing strategy in the first place. That being said, the knock-on effect is that they are no longer actively considering raising capital in Europe.

What is clear to us is that such managers aren’t being fully made aware that there are other marketing solutions for their funds. ‘If reverse solicitation is no longer an option,’ they say to us, ‘why would I  spend the time and effort to try raise capital in Europe?’

The immediate answer we give to that question: pre-marketing.

Once we raise the subject of pre-marketing – and how it is a far more cost-efficient and timely way of engaging with prospective investors before launching a fund – we sense that managers become very interested. It’s at that point that they often start to reconsider what opportunities there may be across Europe.

Clarity for fund managers: the rules about pre-marketing 

The current EU rules around the pre-marketing of alternative investment funds have been live since August 2021. Previously, what constituted pre-marketing – which was sometimes known as ‘soft marketing’ – hadn’t been universally defined across the EU member states. Different rules in different jurisdictions meant the process was considerably more complex, with fund managers often needing legal advice about what was allowed in each country.

Much of that complexity has been removed. The introduction of harmonized, EU-wide, pre-marketing rules has provided greater clarity for fund managers who are looking to navigate this market and need to understand what preliminary promotional activities are permitted before establishing a fund.

What is permitted: the definition of pre-marketing in Europe 

Across all EU member states, pre-marketing is defined as the provision of information on investment ideas and strategies, as well as the track record of the manager. That information is provided by, the authorised representative, to investors in the EU to test their interest in a fund that has not yet been established or has been established but has not at this stage been notified for active marketing. To comply with the rules, pre-marketing must not include information that could amount to an offer or a placement to the investor.

To engage into pre-marketing discussions with potential investors, alternative managers simply need to select an AIFM they would like to work with. In-turn the AIFM files a notification with their local regulator on behalf of the manager. The notification details the intent to launch a fund and their wish to initiate discussions with potential investors in the countries listed in the notification (passporting rights).

Cost efficient and faster: why fund managers are using pre-marketing 

Fund managers are finding that with pre-marketing, the previous cost barriers to initiate discussions and test the market – which could run into hundreds of thousands of Euros – are no longer there. They’re able to gauge investor interest first before incurring the expense of launching the fund.

Pre-marketing is also faster. Previously, managers had to first go through the process of establishing the fund or vehicle. Then they had to appoint service providers including the AIFM, who in turn had to notify the regulator in each of the countries in which they wanted to commence marketing. Obtaining regulatory approval from all the relevant authorities could take up to an additional 21 days following launch of the fund.

Under the current rules, that’s no longer necessary. A Pre-marketing arrangement takes just a couple of weeks to set up. All that is needed is the submission of notification to the relevant regulator, but it does not require formal approval. Once activated you’re able to test the appetite for your strategy with investors across Europe. Once you’re confident to proceed and you feel you have sufficient interest, you can go ahead and establish your fund. This could also be a process which can run in parallel with pre-marketing.

Further regulatory enhancements and the emergence of ELTIF 2.0

Any fund manager who is considering raising capital in Europe should be aware that pre-marketing is only permitted when approaching professional or well-informed investors. When used in conjunction with the passporting rights that come with a pre-marketing arrangement, a manager can register in one EU member state, to pre-market across all member states, and now reach a broader range of potential investors while minimizing initial outlay.  Pre-marketing and marketing passport rights will also apply to the new adaptation of the existing European Long Term Investment Fund regime, known as ELTIF 2.0, when it comes into effect in January next year. These enhancements to ELTIF 2.0 will also open access to a retail network eligible to invest in ELTIF 2.0 funds.

A new market of private individuals and wealth managers, comes at a time when there has been a decline in commitments from traditional LPs and institutional investors to GPs and managers.

Over the remaining three articles in this four-part series, we will take you through the new adaptations of the ELTIF 2.0 framework. We will also cover key considerations you may wish to address when looking to raise capital in Europe and how we are preparing to serve our clients as the fundraising landscape in Europe evolves.

Learn more about Alter Domus’ AIFM Services and Private Equity Solutions.

With the number of fund administrator firms growing by 10% since 2018, how can companies stand out in an increasingly crowded market to provide added value to their clients?

For Jessica Mead, Regional Executive North America at Alter Domus, the answer lies in successfully blending technology with human expertise, with co-sourcing an increasingly popular way to marry the two.

Jessica shared her thoughts during a service provider webinar Oct. 25 sponsored by investment data company Preqin, where she joined panelists Peter Naismith, a partner in law firm Schulte Roth & Zabel, and Meera Savjani, Fund CFO at Arrow Capital.

Co-sourcing model: integrating expertise and technology

While information has always been key to strategic decision-making, Jessica said that GPs are under increased pressure from their investors to provide more precise and transparent data, and to do it in real-time. Service providers who can meet those demands are going to be more successful, she believes, and co-sourcing may be a way to get there.

In the co-sourcing model, the GP maintains ownership of their in-house IT system and data while their service provider works in the environment alongside other departments. Co-sourcing helps GPs meet the shortened reporting timelines requested by investors yet maintain, or even improve, data accuracy.

It can also improve standardization, Jessica said.

“While LPs’ demands can make standardized reporting difficult to achieve, co-sourcing with an experienced service provider means GPs can still achieve industry best practice standards while meeting customized reporting demands,” Jessica explained.

As well as technological expertise, co-sourcing offers another important and complementary client benefit – systems and sectoral expertise. Marrying technology with this expertise, as well as finding the right culture fit, is at the heart of the co-sourcing concept.

In response to Preqin’s claim that AI is being included in due diligence questionnaires for fund administration services, Jessica said she hasn’t seen much of that so far. She noted that Alter Domus is already ahead of the trend by developing tools in-house across the company’s suite of services to streamline some of the more repetitive functions. She also noted that, by automating more and more areas of fund admin, firms will not only need to provide that data output in real time to clients, they will also need to offer value-added expertise to stand out from the pack.

Finally, looking ahead to 2024, Jessica predicted there will be further consolidation in both the service provider and the manager space.

Learn more about Alter Domus’ Strategic Co-Sourcing and Outsourcing services.

We are delighted to have won “Best Fund Administrator – Private Credit” at the Private Equity Wire Private Credit European Awards 2023 in London. This award is the culmination of our efforts over the last ten years and is demonstrated by the fact that today we administer $200bn of European private debt assets.

With our highly experienced European team, we are uniquely positioned to support clients as they look to address the complexities of private debt strategies. The expertise of our people, our integrated service offering, plus our market-leading technology solutions mean we are truly able to offer the advantage in alternatives.

A big thank you to the Bloomberg-selected credit fund managers who voted for us. And a big congratulations to our team!

Real estate businesses, like those in other sectors, know that their performance will increasingly depend on their ability to gather and analyze data. But few have yet mastered the processes, and identified the tools, that will allow them to do so in a cost-effective manner.

A common pitfall is to begin with the assumption that the answer is solely a matter of buying or building technology platforms, observes Gus Harris, head of data and analytics at fund administrator Alter Domus. Instead, he argues, technology should be viewed as an enabler for the smooth flow of data from its source to the decision-makers that utilize it, a process that can be facilitated by a trusted back-office provider.

What are the most pressing challenges for global investment managers’ and investors’ back and middle offices?

The market is expanding. As portfolios grow, managing those portfolios becomes more complicated. Allocating to a wider variety of alternative investment strategies, the scale in AUM that brings, and the intricacies of managing such assets internationally for a diversified client base that demands ever more nuanced risk-return profiles from their investments, increases cost and complexity.

Some of the data flowing back to investors from their portfolios may have been processed manually in the past, but those solutions are just not scalable today. Solutions that may have worked when asset managers had $1 billion under management are no longer effective when they have $30 billion or $50 billion.

Meanwhile, technology has matured significantly. The ability to automate, and to analyze data more efficiently has been greatly facilitated over the past 10 years, and now it is growing exponentially with the introduction of AI and other cutting-edge technologies. If managers fail to harness that capability, it affects their ability to grow scale, because the cost of doing so becomes exorbitant. In addition, if they are too expensive compared to their peers, investors will turn to more efficient managers that can provide them with more and better-quality information.

Asset managers that can charge lower fees and provide better data because they have smartly automated their operations will win out. We have reached the point where managing data is almost an existential issue for managers that want to grow scale.

What are the key considerations for managers seeking to take control of their data?

The first is accuracy and completeness. Data from different sources and contexts must be normalized so that it is directly comparable. It must also be gathered in a timely manner. The second challenge is scale. Whatever data solution a manager has in place needs to be able to scale vertically, so that they can add on more of what they want in a cost-efficient and timely way. It also needs to be able to scale horizontally, as the manager invests in new types of instruments. One of the current features of the market is how many new flavors of investment solution are being added all the time.

A third consideration is efficiency and cost-effectiveness. We hear from our clients that software providers will sometimes show them a solution that initially looks good, but when they start to use it is too costly to get the accurate, complete, normalized data that they need. Agility is also vital – the ability to build around the data solution. It cannot be built in isolation. To benefit from data in decision-making, market participants need to think about how they will use it, building solutions that can be incorporated into their corporate identity and asset management processes to make them more efficient. They need to consider the ecosystem that is going to support and live around the data solution.

Finally, it must be usable. Data solutions should be designed to help investors to make decisions when they are considering what to buy or sell, without them needing to be technologically-savvy. Using data better is not a technology problem, it is a decision-making problem. Technology is critical to solving it, but getting the design of that technology right, and building a supporting ecosystem around it, requires a combination of people and technology.

To what extent has the real estate industry embraced the digitization of private markets fund administration?

The good news is the industry sees the need. The market is sold on the idea that we must modernize and move to next generation capabilities to grow the alternative marketplace. Different providers, investors and managers are at different stages of the maturation process. There are not many sophisticated investors and managers out there who believe that the status quo as it was a couple of years ago is sufficient. Some have moved faster than others, and frankly, that’s fine.

What you don’t want to do is jump in with a solution that that you will regret later. We see a lot of that among clients who made technology-related decisions a year or two ago. Being a pioneer or first mover may not always be best, unless you first think through how it will work in practice. The pitfall is failing to understand when you make these decisions, what you are going to get at the other end, and how you are going to maintain and scale it.

What options are open to managers looking to improve their processes for managing data?

One is to work with a trusted back-office provider, especially one that has made a sizable investment and built out capabilities the way Alter Domus has over the past couple of years. Another option is for managers to do it in-house. That is a very challenging task. It is extremely expensive and keeping up with market standards may be difficult. Having said that, a lot of our clients are building modern solutions for their workflow. The two approaches are not mutually exclusive. A manager can have their admin provider be a big part of it, while also making changes themselves. Both need to take the journey at the same time and build solutions together.

A third option is for the manager to piece together various third-party solutions, licensing a variety of tools and applications from various providers and merging them into one integrated solution. That presents two major challenges. Firstly, they have effectively recharacterized the challenge as a technological challenge by hiring software providers that lack critical domain expertise. Therefore, the data they provide may not be as accurate and complete as the manager would desire. They will need their own team in place to make it fit for purpose. Secondly, they will have the extremely difficult job of connecting all the different solutions. Trying to solve those problems with several individual software providers can get extremely expensive.

How has Alter Domus, faced with more clients, more data, and more complex mandates, sought to meet those challenges?

We have made large investments in automating and scaling our capabilities to support our clients through our Accelerate program, which began two years ago. We have greatly enhanced the capabilities of our applications, workflows with our clients, and the delivery of data and analytic solutions to them. We are locked arm-in-arm with a lot of our clients on that journey.

Over that period, we have been doing the foundational work to aggregate data, tag it, build workflows, tools, engines, and analytics, all sitting underneath our storefront Vega platform. That provides a single, centralized platform where clients can access all the tech solutions they currently use and “shop” for others. And within Vega, if clients want an aggregated view of the data across their portfolios, they can access that through our Gateway application. That allows them to drill through all their funds to look at exposures and correlations.

How do you expect digital platforms to evolve in the future? Could artificial intelligence have an impact in this area?

Over the next couple of years, the market will be very busy tackling the challenges of data accuracy, scalability, efficiency, agility and usefulness. And along the way, technology will continue to evolve. At Alter Domus, while the data we are bringing into the Vega storefront is substantial, it is probably not complete.

As they become more successful at managing their data, clients will see the potential to keep growing these platforms, so that they could eventually become the single source of truth, lock stock and barrel, across their organizations. We are already incorporating elements of AI into our solutions, for document classification and document data extraction, for example.

As we get better at this, AI could be used to create widgets and applications that sit within the data ecosystem, providing tailored analytics and reports. However, it is critical to understand that without a clear focus and direction for using AI, organizations could just be spending a lot of time and money on theoretical impractical solutions. Our approach is to look for short term wins that show how AI could be part of the solution.

How can applying digital solutions benefit investors, and administrators working on their behalf?

Investors want to see performance. Employing digital solutions can help them to generate greater returns at a certain level of risk, as well as fine-tuning that risk and better identifying which risk they want to take. That is because they can perform analysis that they were not able to perform before, drilling through to the risk factors: credit risk, property risk, demographic risk.

That capability allows investors to greatly improve the performance of their portfolio. As well as improving performance at the individual asset level, you can also apply analysis across the portfolio in a way that has been difficult to do in private alternative markets up to now. It is very exciting what this opens for investors, and I am very confident we are going to get there as an industry.

This article was originally published in PERE’s Technology Report.

Alter Domus, a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry, has appointed Michael Janiszewski as its new Chief Operating Officer.

In this role, Michael will report to Doug Hart, Alter Domus Chief Executive Officer, and will also join Alter Domus’ Group Executive Board.

Michael brings significant executive experience in leading the operations of global organizations. His successful 20+ year track record spans business & strategy development, business transformation, operational excellence, and digital innovation. Mike joins Alter Domus from BNY Mellon’s Securities Services and Digital business, where he served as Chief Operating Officer.

Alter Domus CEO Doug Hart said: “We’re excited to combine Michael’s expansive background with Alter Domus’ industry leading private markets services platform. Our aligned vision of the future of alternative investment operations will accelerate the Company’s client experience initiatives day-one.”

Following his appointment, Michael Janiszewski, Alter Domus Chief Operating Officer, said: “I am proud to join Alter Domus and am excited by the bright future ahead of our organization. I am looking forward to partnering with the talented and experienced group of executive leaders on our Group Executive Board, as well as the talented professionals across Alter Domus.”

Michael holds a BA in Electrical Engineering and a Certificate in Applications of Computing from Princeton University, and an MBA in Finance, Accounting, Strategy, and Entrepreneurship from the University of Chicago Booth School of Business.

What challenges are private equity managers currently facing around liquidity and funding?

The difficult dealmaking environment is really steering all the liquidity issues that managers are facing right now. The fact that dealmaking has significant­ly slowed down over the last 12 to 18 months – and the same is true for fund­raising in the last six to nine months – is creating a bit of a challenge.

We still see managers observing the availability of follow-on investments or quality assets; the economy hasn’t stopped and there are plenty of oppor­tunities. However, LPs have slowed down their commitments because of a lack of liquidity, and that has created constraints. Institutional investors still believe in private equity, but they have been impacted by both a slowdown in distributions and the denominator effect. As a consequence, their own liquidity has become more correlated with other asset classes – this creates challenges for them.

For a long time, constrained private equity managers relied on subscription line financing, but in the wake of the regional banking crisis in the US at the start of this year there are now fewer lenders and slightly higher rates in that space. LPs are questioning the use of those facilities, which were always a bit of a short-term solution.

What financing options are PE funds embracing?

We have seen a growing number of cli­ents looking to GP-led secondaries as an interesting solution to the current challenges. This is taking place at both ends of the spectrum: GP-leds are being used as a means of providing liquidity to LPs, as well as a route to new funding for some of the assets in their portfolios.

In most of these deals, we are talk­ing about high-quality assets that might have been in the portfolio for a while, have been performing well, and the GP believes there is more value to be ex­tracted. A GP-led secondaries deal of­fers an opportunity to release liquidity to LPs that have been in the fund for some time so that they can continue to invest and re-up into the next fund.

In terms of other financing options, we still see sub lines being used a lot, while NAV financing solutions are also picking up steam. Those tools have been out there for many years, but they are receiving increased attention in the current climate. However, they are not without complexity.

From a lender perspective, the NAV financing market has started to evolve, with a wave of key players leaving leg­acy banks to join asset managers that are creating dedicated NAV financing funds. Those individuals really under­stand the asset class and are able to increase that velocity of distributions back to LPs so they can re-up with ex­isting managers.

The other issue here is the slow­down in exits, with the tide having shifted significantly in the last three or four years. LPs have turned their focus from IRRs to distributions, and while they understand that it is not always in the manager’s control to decide when to sell, at least with NAV financing they can achieve some predictability of cashflow. What’s more, this is not nec­essarily just for right now: we don’t see NAV financing going away, but rath­er becoming a much more commonly used liquidity tool for managers.

How would you describe the current health of the PE secondaries space?

The PE secondaries space is very healthy, both for GP-led and LP-led deals. Last year, GP-leds considerably outpaced LP-led transactions. That had more to do with the exit markets as managers didn’t want to be forced to sell when rolling LPs could see more runway. A lot of LPs chose to go into those deals because they weren’t ex­periencing quite the same liquidity crunch as we saw going into 2023. To­day, GP-leds are still getting done for high-quality assets.

On the other side of the equation, LP-led deals have picked up in 2023. Those deals are not trading at major discounts – they are right around NAV, or maybe at 80 or 90 percent – and there is a healthy volume of activity.

Immediately after the global finan­cial crisis, we saw LP-leds trading at 20 or 30 cents to the dollar, and at that point we started to see the use of defer­rals. Then portfolios started to mark to par, and sub lines came back into use.

Today, we are seeing another pick up in the use of deferrals, where a seller and buyer agree a price and then agree to defer some of that purchase price out a few years. Maybe a buyer is willing to pay closer to par on the valuation of the portfolio in that instance and the sell­er is willing to wait in exchange for a higher purchase price. For some selling LPs, the result is enough liquidity to bridge the gap they are facing thanks to a lack of distributions. It doesn’t work for everyone, however, with some sell­ers preferring to accept a purchase price at 80 percent of NAV for cash upfront.

What challenges do managers face when tapping the GP-led market?

One of the biggest challenges is under­standing and meeting the expectations of LPs. Most GPs are rolling more carry into a continuation vehicle and taking a bigger stake, because there is much more focus on alignment in these deals. LPs want to see managers put­ting more skin in the game.

Another issue is the SEC is putting a lot more regulatory focus on these deals, introducing a regulatory process around third-party valuations, for ex­ample. And, of course, the economics will be a little more friendly to the LP base in a continuation vehicle, which managers can find challenging.

Finally, there are the issues asso­ciated with convincing LPs that this is the right decision, which requires managers to be ready with the data on the portfolio company and with a plan of where they see things going. The transparency is something that most managers have caught up with, but the volume and frequency of data required from the portfolio is nevertheless a challenge.

The good news is that there is cap­ital available for these transactions and there are LPs that want to cash out, which means there is appetite on both sides.

What new trends do you expect to feature in the debt finance market over the next year or two?

We are seeing growing sophistication in the NAV financing market, shifting from a focus on lending from banks towards other funders with more li­quidity. No doubt over time we will see more use cases, and an industry that started out as pretty vanilla will attract more expert professionals.

We are also seeing a lot of clients struggling to achieve anything mean­ingful with capital call facilities because the banks are hesitant. Over time, we expect less reliance among PE man­agers on traditional bank lenders and more use of the tools being created by a new wave of asset managers who are combining private equity and credit market expertise.

This article was originally published in PEI’s Debt Finance Report.

Here are some key areas of the Final Rules that each private fund advisor will be responsible for, regardless of whether they are registered with the SEC or not:

• Quarterly Statement Rule 211(h)(1)-2
• Audit Rule 206(4)-10
• Compliance Rule 206(4)-7(b)
• Adviser-Led Secondaries Rule 211(h)(2)-1
• Preferential Treatment Rule 211(h)(2)-2
• Restricted Activities Rule 211(h)(2)-3 

With these rules in mind, here are five key things private fund advisors should be considering and preparing for now:

1. Become familiar with the required updates needed for private fund quarterly and annual audit reporting including required issuance dates, governing documents, policies, and procedures.
2. Consider any grandfathering clauses that may affect your requirements under the Restricted Activities Rule and Preferential Treatment Rule with respect to already existing agreements.
3. Start to work through how to incorporate additional transparency around private fund fees and expenses, including calculations and cross-reference to organizational documents, performance, and potential conflicts of interest.
4. Review preferential treatments currently in place for certain investors in a private fund or a similar pool of assets and become familiar with the disclosure requirements, or cessation, of the same, for current and prospective investors.
5. Assess the adoption dates for the new rules.

No one-size-fits-all approach

The nature and complexity of these reforms mean that firms need to take a proactive and individual approach to their compliance – there is no cookie-cutter solution.

With that in mind, here at Alter Domus, we are cognizant of the amount time and collaboration our clients will require across their own organization and across third party service providers, like ourselves.

The new requirements will have significant impacts on the timing and level of detail and disclosures required for quarterly and annual financial reporting, and as such, please get in touch with us to discuss our plans for preparation. Contact us below.

Secondaries in the spotlight

Fundraising for the secondaries market – where investors purchase securities or assets from other investors rather than directly themselves – has finally bounced back after steep falls from the highs experienced during covid-stricken 2020, with H1 2023 showing a 28% year on year jump. Indeed, the broadsheet financial media has been awash with reports of large players raising billions specifically for allocation to secondaries, with the pervading sense from market players that it’s been both undercapitalized and, to a degree, an undervalued part the alternatives eco-system.

While the actual volume of transaction for secondaries didn’t meet expectations in H1, market commentators seem to believe an incredibly robust H2 will make up for any shortfall. What’s clear is that the market has matured and grown in terms of sophistication with players on both sides of the equation using ever more sophisticated asset performance and sectoral data to guide their investment strategies.

Liquidity and economic uncertainty are the key drivers

As the saying goes, not all heroes wear capes, and in a period where liquidity has been increasingly scarce, the secondaries market has been a lever that both GPs and LPs can turn to and pull. If capital is the lifeblood of a financial system, then secondaries can be seen as an essential safety valve that allows that capital to keep flowing through the arteries, meeting investors need for liquidity.

What’s also helping secondaries seize the moment is the ongoing sense of uncertainty still gripping major economic markets. Investors seem either cautiously optimistic or cautious with regards to optimism as they wait to see whether interest rates and inflation will begin to properly descend. On the private equity front, this ever-present uncertainty – the bête noir of deals – has kept the under-performance of 2022 rolling deep into 2023: reigned in investments, blocked exists, and stymied fundraising for many traditional PE transactions abound. The safety valve of secondaries therefore becomes ever more appealing.

The LP advantages

For limited partners, there are two clear ways to take advantage of turning to secondaries; firstly, if there’s a need to re-up for the next investment cycle and reshape their portfolio, then offloading that asset at the right pricing floor becomes an attractive prospect. Secondly, for limited partners on the buy side looking to find quality businesses or assets at a sometimes heavily discounted price on the dollar, there are great deals to be had. Of course, there’s a tango that takes place between buyer and seller and there were times post-2020 where there was no great alignment on price or valuation of assets, hence the slowdown in-deal activity. As things stand in H2 2023, deal flows are good, discounts deep and buyers and sellers are making matches.

On the private equity front, the last 12 months has seen the expansion of secondaries funds aimed squarely at the middle market, with an ever more diverse sectoral selection of well-positioned companies becoming available. Of course, middle market companies have a lot more room to grow both operationally and in terms of scale, and often benefit hugely from PE firms’ capital injections and M&A expertise. The feeling among many investors is that there are bargains to be had in this space, and sellers seem more willing in this illiquid moment in time to adjust their valuations to get deals over the line.

GP-led secondaries have changed market dynamics

Looking at the history of secondaries, there is another key development it would be remiss not to highlight. If first period of the market was defined by limited partners led deals, then the second (let’s call it ‘post-Covid’) has been defined by the rise of GP-led transactions. Historically many GPs have often found themselves facing what you could term a ‘capital conundrum’ – on the one hand the need get a return on an asset as the clock ticks down on a fund, on the other often knowing they may be selling that asset before its value has been maximized.

Enter, stage left: GP-led secondaries

The asset – often held in a vintage fund nearing expiration – is sold into a continuation fund which enables GPs to keep control of their asset, attract investment from new limited partners, and pay out their original fund investors. Holding on to high quality assets for an extended period can help GP’s ensure they extract every bit of value created by their work and effort. It also offers the original investor optionality; an escape hatch if the investor is looking for distributions in order to re-invest or re-allocate their capital due to internal or external economic factors, or the opportunity to roll their capital into the continuation fund and share on the potential upside, often at more enticing economic terms than the original fund vehicle.

The outlook

With momentum building in the secondaries space and greater supply coming on-line, it’ll be fascinating to see where both fundraising and transaction volumes finish in 2023. It’s worth remembering that these are complex financial vehicles; having the right support for the operational process of administering a secondaries fund and the right tools in terms of data capture, delivery and monitoring is essential.

Looking at the horizon there are three factors that might have both short and long-term effects on Secondaries.

1. The potential impact in the US of the SEC’s Private Fund Reform Rule around Adviser-led secondaries and the requirement to obtain a fairness or valuation opinion from an independent party
2. The speed at which private equity players embrace AI and Automation to enhance the deal making decisions
3. To what extent the rise of NAV / Borrowing Base loans will eat into secondaries allocations

We’ll of course be opining on these factors in the months ahead, but, for now, in the ongoing race of financial performance, coming secondary seem to have its advantages.