This Monday we take a look at what regulators focus on when reviewing secondaries transactions.
In a sponsored video with Private Funds CFO, Tom Angell, a partner at Withum, says regulators are most interested in conflicts of interest where the investor is potentially not getting a “fair shake on the deal.”
“There have been enforcement actions where a GP had bought out some LPs and they used the year-end valuations and they were doing the deal the following September,” Angell said. “There was definitely an increase in valuations but they were using stale older deals to the betterment of the GPs and not the LPs.”
The conflict of interest can arise because GPs understand that the selling LPs might be “in a tight bind,” according to Angell, and so the GPs can “take advantage of that in terms of pricing because they want to get out, and so they can bid lower.”
GP-led transactions made up 32 percent of the $74 billion secondaries market in 2018 and the industry continues to grow. Angell said the best way a GP can ensure a clean process is by hiring an outside valuations expert.