Setter Capital covers over 7000 institutional investors in alternative investment funds, over 900 buyers of funds, more than 2000 opportunistic sellers, and their buy and sell interest in more than 3000 fund families. In the course of monitoring this secondary market activity, Setter has developed a unique measure of the relative liquidity of fund investments, termed the Setter Liquidity Rating™, whereby certain fund families 1 receive a rating of ’Good‘, ’Very Good‘, ’Excellent’ or ‘Unrated’.
The Setter Liquidity Rating™ is largely determined by the number and strength of potential buyers (i.e. those who have shortlisted the fund, are current investors or who have recently priced the fund) for a secondary of a fund. The rating is adjusted downward in the presence of factors that negatively impact liquidity such as the manager being relatively more restrictive on transfers. The rating is also influenced to a certain extent by Setter Capital’s subjective view on the composition and strength of buyer demand for a given fund family.
What does a rating of Good, Very Good, Excellent or Unrated mean?
Generally, a ‘Good’ rating suggests that there are many potential buyers, (typically 20+) that are interested to bid on a fund within the fund family. ‘Very Good’ and ‘Excellent’ denote progressively stronger potential demand. ‘Unrated’ fund families are less targeted by buyers and/or have fewer buyers within their existing investor base or for which there is simply not enough data points because they rarely come up for sale.
Possible Interpretations of a Setter Liquidity Rating™:
From a seller’s perspective, a higher Setter Liquidity Rating™ suggests a number of benefits. First it means that they can create competitive tension in a sale process since there are a number of potential buyers for their fund. For this reason the Liquidity Rating correlates strongly with price, though in many cases funds that are unrated may price better than rated funds simply because the rated fund may not be as highly regarded in spite of having many buyers. The second benefit of a higher Liquidity Rating for a seller is that bids are more readily available, making a sale process easier and quicker. The seller can be more selective about counterparties, potentially choosing to work only with buyers who are existing investors or who have binding bids in hand. A final benefit of a Liquidity Rating for sellers is that the market can more readily absorb multiple sellers or larger commitments simultaneously with less downward pressure on price.
A Liquidity Rating could also be a useful metric for new investors in funds and secondary buyers of funds. From a new investor’s perspective, a Liquidity Rating suggests that the relative liquidity of the fund will likely be higher than its unrated peers in the event they need to consider a sale in the future (provided of course that the Liquidity Rating does not decline in the future).
From a buyer’s perspective, a Setter Liquidity Rating™ suggests the market is more competitive and efficient, putting downward pressure on returns but perhaps suggesting also a less risky investment from a resale/liquidation perspective.
Caveat
The Setter Liquidity Rating™ is to be used as a point of reference only and should not be relied upon to make an investment decision. An investor should independently determine the potential liquidity of a fund.
Where can you find the Setter Liquidity Rating?
The Setter Liquidity Rating™ can be found at www.secondarylink.com/funds where you can search over 4000 fund families and their associated rating.
The following are some examples:
Mega LBO Funds Liquidity Rating
Apollo Excellent
Bain Capital Excellent
Blackstone Excellent
Carlyle Partners Excellent
Clayton Dubilier & Rice Excellent
KKR Excellent
Madison Dearborn Excellent
Providence Equity Excellent
Silver Lake Partners Excellent
Thomas H Lee Excellent
TPG Excellent
Midmarket/Growth Funds Liquidity Rating
ABRY Excellent
Advent Global Excellent
Berkshire Partners Excellent
Green Equity Investors Excellent
Hellman & Friedman Excellent
Kelso & Company Excellent
New Mountain Capital Excellent
Riverside Capital (RCAF) Excellent
Summit Partners Excellent
Warburg Pincus Excellent
Welsh Carson (WCAS) Excellent
Distress-Credit Funds Liquidity Rating
Ares Corporate Very Good
Cerberus Institutional Very Good
Fortress Credit Good
HIG Bayside Very Good
Lone Star Very Good
OCM Opportunities Excellent
Sun Capital Excellent
Venture Funds Liquidity Rating
Accel Partners Very Good
Benchmark Very Good
Index Ventures Good
Matrix Partners Good
Menlo Ventures Good
New Enterprise Associates Very Good
Oak Investment Ptrs. Good
European LBO Funds Liquidity Rating
Apax Europe Excellent
Bain Capital Europe Excellent
Bridgepoint Europe Excellent
Carlyle Europe Partners Excellent
Charterhouse Capital Excellent
Cinven Excellent
CVC Europe Excellent
EQT Excellent
KKR Europe Excellent
Permira Excellent
Asia Pacific Funds Liquidity Rating
Bain Capital Asia Very Good
Baring Asia Very Good
Carlyle Asia Partners Very Good
CDH China Fund Excellent
CVC Asia Excellent
Hony Capital Very Good
Ironbridge Very Good
KKR Asia Very Good
Pacific Equity Partners Excellent
TPG Asia Very Good
Infrastructure Funds Liquidity Rating
Alinda Infrastructure Good
Arcus European Infra Good
Cube Infrastructure Good
Dutch Infrastructure Fund Good
Energy & Minerals Group Good
EQT Infrastructure Good
GS Infrastructure Partners Good
Highstar Capital Good
MEIF (Macquarie) Very Good
MIP (Macquarie) Good
MSIP (Morgan Stanley) Good
RREEF Infrastructure Good
US Power Very Good
Real Estate Funds Liquidity Rating
Beacon Capital Very Good
Blackstone (BREP) Excellent
Carlyle Realty Very Good
LaSalle Asia Very Good
Starwood Very Good
TA Realty Associates Very Good
Tishman Speyer Europe Very Good
Walton Street Very Good
Energy Funds Liquidity Rating
EnCap Very Good
Enervest Very Good
First Reserve Excellent
Kayne Anderson Very Good
LS Power Excellent
Natural Gas Partners Excellent
Riverstone Energy Excellent
1. A fund family is a series of funds managed by a single fund manager with a common strategy. For simplicity, fund families are rated rather than specific funds within a family. Setter Capital has found that on a relative basis, if a specific fund is popular or there are many existing investors then the liquidity of prior, subsequent or other funds of the same manager are correlated.
