Divestment of a "Portfolio Strip" or Tail End Fund on Secondary Market
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With the significant increase in GP Fundraising that emerged in the late 1990’s, many venture and buyout funds raised from the 1997 vintage onwards are approaching the end of their term, even after extensions have been approved. While GP’s have had many exits from these portfolios, also known as “Tail End Funds”, there are still many companies within these portfolios that have not yet had an exit event and still may have exit prospects before the end of the fund term expires, but may have exit opportunities over the longer term.
Accordingly, many GP’s are considering divesting their entire older vintage portfolios or select companies within these portfolios on the secondary market for several reasons:
- Cutting down administrative overhead and enabling investment managers to focus on committing to newer vintage funds
- To optimize pricing by divesting an entire portfolio at one time via the secondary market, rather than wait for several companies of the portfolio to reach a natural exit, and having the rest of the portfolio companies, which would only be divestable in combination with the Companies closer to an exit event in a secondary market portfolio transaction, become less valuable at the end of Fund Term, even though they may have longer term exit prospects.
We can assist select GP’s with divestments on the secondary market that can take several forms:
- A GP may want to divest the entire portfolio on the secondary market.
- A GP may want to divest "Strips" of equity realization from each company in the portfolio in order to generate liquidity or a realizable exit that can leveraged for track record development.
Our engagement, valuation and transaction process on behalf of General Partners is similar to the process we undertake for our Institutional Limited Partner clients.