London-based Secondcap will be cheaper than a broker, which typically charges a 2% fee per transaction, according to the Financial Times. The online firm is expected to remove much of the hassle and manual processes of selling secondary interests. The platform will also allow investors to trade more than 2% of a U.S. PE fund per year without changing the tax treatment of the general partner under publicly traded partnership rules, the FT says.
The secondary market is expected to surge in coming years. With distributions more difficult to get, LPs are expected to use the secondary market as another way to gain liquidity.
Secondcap will target this growth. However, companies like Secondcap have failed before because of the need for strict confidentiality in selling LP interest in PE funds, the FT says. Martin Graham, Secondcap’s chairman, says they have addressed the confidentiality issue by allowing PE firms to approve which buyers are allowed into auctions and by asking bidders to sign non-disclosure statements.
However, one head of a secondary firm tells me that web sites like Secondcap only help put buyers and sellers together. “You cannot automate the entire process,” the exec says.
Secondary sales, the source says, are M&A transactions that need to be done in a private setting. Certain elements of a typical deal, like due diligence and negotiations, must remain private, the source says.