Secondaries Rise Again in Q1

It’s not just Facebook that’s exhibiting the symptoms of rapidly escalating valuation syndrome. Across nearly all private equity asset classes, prices for secondary stakes are on the rise.

Those were the findings for the first quarter of the year, according to NYPPEX, a secondary market intermediary. After a very active 2010, the pace of secondary transactions in 2011 remains on a tear, with sellers increasingly demanding higher prices, and buyers increasingly buying.

Buyout funds saw the largest price gains of all private equity categories in the first quarter, with prices for fund stakes up 8.2% from the prior quarter to 90.5% of net asset value (NAV), according to NYPPEX. Distressed debt funds saw the second-highest gains, with prices for stakes up 8% to 75.2% of NAV.

Though secondary activity in the market for hot venture-backed Internet companies was in the spotlight during the quarter, prices for venture fund stakes saw smaller gains. Overall, venture stakes were up 2.1% from the prior quarter to 76.7% of NAV.

Current pricing levels mark a sharp turnaround from the depths of the financial crisis, when low prices stymied transaction volumes as even liquidity-strapped sellers chose to hang on to stakes rather than sell at ultra-deep discounts.

Today, secondary market insiders are worried about the opposite problem – that further price increases will scare away buyers.

“Although the current climate is robust for sellers, we are concerned that NAVs stop increasing and that secondary prices begin to decline,” said Laurence Allen, managing member of NYPPEX. “Many buyers feel prices are high.”

Allen listed first quarter median prices for other private equity asset classes, all but one of which showed increases, including:

Real Estate            +7.1% to 56.07
Natural Resources  +6.3% to 59.12
Fund of Funds        +2.6% to 57.82
Hedge Funds          -4.4% to 86.19