A view from the secondary market: sought-after U.S. buyout funds

It’s always instructive to see how specific funds are trading on the private equity secondaries market, to get a sense of how those funds are perceived in the primary world.

Now, this is not an absolute measure of a fund’s reputation — funds are popular on the secondary market for a variety of reasons. Big name brand funds, for example, never have a problem attracting attention.

Interestingly, though, there is a lot of interest in smaller and mid-sized LBO firms with funds that seldom, if ever, hit the secondary market, according to Peter McGrath, managing director at secondaries intermediary Setter Capital. Some of these rare and valuable GPs include JMI Equity, Catterton Partners, Charlesbank Capital Partners, Marlin Equity, Roundtable Investment Partners, Sentinel Capital Partners and Water Street Partners, according to Setter.

“If you’re an investor with funds on this list, you should know that there are scores of buyers eager to make you an offer,” McGrath said. “In many ways, you are in a very good negotiating position.”

Along these lines, Setter has released a list of the 50 most sought-after US buyout funds on the secondary market. The ranking is based largely on the number of buyers that have expressed strong interest in these specific funds, though other factors do come into play. Funds are also given a Setter Liquidity Rating, which is a relative measure of their salability and buyer demand. The most liquid funds receive a rating of Excellent, Very Good or Good, while all other funds are simply classified as Unrated.

Funds rated as Excellent include those managed by Blackstone, Bain Capital, ABRY, Berkshire Partners and Hellman & Friedman; those rated Very Good include GTCR, Charlesbank, Spectrum Equity and Trilantic Capital; and funds rated Good include AEA Investors, J.C. Flowers & Co. and Marlin Equity.

Here is the list of the 50 most sought after US LBO funds on the secondary market. For more information, check out Setter Capital’s huge store of secondary data at www.secondarylink.com. (SecondaryLink, by the way, is really interesting … kind of like the Facebook of the secondary world.)

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