Clifford Chance

Private capital - liquidity solutions for private funds

In this briefing, we describe some of the new developments and trends on the spectrum of liquidity solutions available to managers/ GPs of private closed-ended funds. In particular, we address continuation funds and secondaries, NAV financing and asset level financing tools such as margin loans and repos. These alternative liquidity solutions have become increasingly accepted by market participants in recent years. We expect the macro factors that have driven the rise of these alternative liquidity solutions to continue to persist, leading managers and LPs to increasingly use this alternative exit technology as a more customary tool in their toolbox.

The GP-led secondaries space is widely considered to be an under-capitalised market. We may see increased levels of capital coming into these types of transactions (including from funds with a retail investor base) and more competition on the buy-side. Investors will likely pay more attention to conflicts of interest issues and put more pressure on GPs in their assessment of transactions, including whether a "true" status quo roll mechanism is on the table. We expect NAVs to become ever more mainstream and LPs to become more comfortable with their use – within defined parameters – in the same way as with capital call facilities. Margin loans, repos and other derivative solutions have also found their place within the arsenal of some managers / GPs, although more general adoption will be subject to their pricing as compared with other liquidity products.