Secondary market

Where an existing investor sells a position to another investor rather than back to the issuer or the fund.

Example

Selling a private fund interest to a buyer at a discount to its carrying value, years before the fund winds up.

Important

That a secondary market exists in principle is not the same as positions in your vehicle having actually traded. Ask whether transfers are permitted, whether consent is required, and whether any have happened.

Related terms

• Illiquidity discount — The reduction in price a seller must accept to find a buyer for something that cannot be readily traded.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.
• Redemption — Withdrawing money from a fund by selling units back to the vehicle itself, rather than to another investor.

Lessons that explain it

• Acquisition, listing, secondary sale or wind-down - most exits are the first and the last — Private investments return money through a sale of the company, a public listing, selling shares to another investor, or a wind-down. Public listings are the most visible and among the least common outcomes. (9 min)
• Selling early means accepting a discount; a wind-down usually means preferences take what is left — A secondary sale can return cash before a company exits, typically below the latest valuation. When a company winds down, creditors and preferences are paid first, and common holders commonly receive nothing. (11 min)
• Lock-ups: what you actually give up when you cannot sell — A lock-up is a promise you make about your own future, and you make it without knowing what your future will need. Here is what is on the other side of that promise. (10 min)
• A decade locked up, a fifth of it paid in fees, and a tax treatment set by the structure — The main costs of a venture fund are illiquidity, fee drag that compounds, and taxes that depend on where you live and how the fund is set up. (12 min)

All 578 terms in the Investing glossary