How are PE fund secondaries priced?

Question

AcadiFi · Accepted Answer

A PE secondary transaction is the sale of an existing LP interest to another investor. Pricing is quoted as a percentage of reported NAV — e.g., 'trading at 88% of NAV' means the buyer pays $88 for $100 of stated book value.

Price drivers:
1. **NAV staleness** — reported NAV lags by 3-6 months. Buyers bid down if public market comparables fell, up if they rose.
2. **Remaining duration** — shorter remaining fund life means less fee drag and earlier distributions; higher discount factor means NAV is worth more today.
3. **Quality of GP and portfolio** — top-quartile GPs' funds often trade at 95-100% or even premiums; bottom-quartile may be 70-80%.
4. **Fund maturity** — tail-end funds (years 9-12) often trade at deep discounts because remaining assets are hard to exit.
5. **Unfunded commitment** — if significant unfunded, buyer takes on future calls at their cost of capital.
6. **Macro environment** — 2020 Q2 pandemic saw secondaries at 70-80% of NAV; 2021 boom saw some at 105%.

Example: Glenfield Secondaries buys an interest in a 2018-vintage buyout fund with $8M NAV and $1.5M unfunded from an LP needing liquidity. Bid: 92% × $8M = $7.36M plus obligation to fund the $1.5M. After due diligence they believe fair NAV is $8.4M and unfunded will convert at reasonable multiples; expected net IRR from purchase forward is 18%.

Large specialist secondary funds (Ardian, Lexington) raise $10B+ vehicles to do thousands of LP-interest purchases annually.

How are PE fund secondaries priced?

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