Secondary Quote of the Day II: “We’ve been feeding investors two drugs.”

Ken Sawyer, Saints Capital, a venture capital blind pool fund:

We have been feeding investors two drugs, one good and one bad. The good news is, given all the recaps we’ve been giving a lot of money to investors and that’s exciting.

The bad is when you buy an LP state at a discount, you get an immediate write-up, and when you have an immediate writeup, IRR looks really good in a short period of time. What’s happened bit by bit, as FAS 157 kicks in more, is you get further and further away from your writeup and the find NAV approaches truer value, that IRR doesn’t look so good anymore.

You’re going to see declines – it’s a great investment area but investor excitement about the secondary market will not be as long as we’d like it to be, as accounting issues start muddying waters in terms of how attractive the market is.