Three years ago, at 4am on the day after Thanksgiving, I rushed my pregnant wife to a Best Buy in Westchester, hunting for a laptop selling far below cost. Expecting to be among the very few crazy enough to shop on Black Friday before sunrise, I was shocked to see a line stretching around the block (including other pregnant women). By the time we were finally allowed into the store, all the best deals had all been snapped up, leaving laggards like us to scavenge through baskets of bargain-priced junk. Determined to have some sort of compensation for our lost hours of sleep, I purchased a deeply discounted DVD— the Arnold Schwarzenegger classic Total Recall. Since this event, I have taken to calling the purchase of a good or service to justify one’s effort “Black Friday Syndrome.”
Now, just a week after Black Friday 2009, I have been asked by several investors in private equity if Black Friday Syndrome might be entering the secondary market for private equity LP interests. Since late summer, we have seen prices increasing in the secondary market. This has been reported by numerous sources and nicely summarized at peHUB by Erin Griffith.
Are secondary investors starting to buy private equity LP interests to justify their fund-raising efforts or is there a more rational explanation? Will buyers be left with the private equity equivalents of Total Recall DVDs? At a secondaries conference I participated in several weeks ago, Dan Primack even speculated that secondary funds will be unable to find investable opportunities and return some of the capital they raised.