Private Equities have received a lot of attention lately. Due to several reasons I won’t detail in this post, they have a clear advantage in term of costs compared to Public Equities. One thing they definitely miss is the liquidity their public siblings usually enjoy.
I’d like to present on this post an idea I’ve playing with for a while: securitizing pools of private equities to offer liquidity to their holders. The schema would go like this: You first create a vehicle on a pool of private companies within a specific sector, industry. The administrators of the vehicle then acts as market makers for the different companies, issueing shares of the vehicle in exchange of private shares on bids and asks terms. The vehicle itself is traded on a public market, offering the liquidity private investors are seeking after they exchanged their shares against securities of the vehicle, then sold these securities on the public market.
There are already funds that are floated on public markets. They offer to their investors the liquidity they would miss otherwise. They also offer a good mechanism to assess value of the funds’ portfiolios correcting awkward valuations that accouting principles can sometime provide on the assets of these funds.
What would be rather novel I think is that people owning private shares would actually invest by providing their shares to the vehicle. With a continuous market making from the administrators of the vehicle, they would not only gain liquidity, but also a continuous valuation of their shares against the shares of the vehicle, and public market would provide valuation of the shares of the vehicle for the entire portfolio – something easier to do for public investors.
If you’d like to discuss the subject of private equity and liquidity, please join us within the BarCampBank where we exchange ideas on these topics and many others.
Frederic Baud 