How can an illiquid asset class meet the unique liquidity needs of new investor types that have growing demand for private markets exposure?
The traditional tender-led exit feature many registered private funds use do not meet the unique liquidity needs of Accredited Investors and Defined Contribution pension plans. This impacts a critical part of the investor experience and subsequently practicality and adoption.
The Nasdaq Fund Secondaries' (NFS) exit feature for registered private funds is a small but mighty change to solve this issue.
Nasdaq worked with the SEC to receive exemptive relief to permit certain funds to offer an exit feature via periodic auctions conducted on the Nasdaq Fund Secondaries platform that can offer enhanced liquidity opportunities for investors.
Registered private funds that use this exit feature dramatically enhance the investor experience by increasing the frequency of exit opportunities to monthly and uncap how much of their holding they can opt to sell. Further, liquidity isn’t funded by the manager, but instead through a closed secondary market, enabling the fund to be fully invested and enhance the investor returns opportunity.
This small change creates a big impact on exit opportunities and the investor experience and creates a truly practical way for accredited investors to gain private markets exposure.
1: More Frequent Exit Opportunities
Funds using Nasdaq Fund Secondaries' exit feature provide monthly exit opportunities for investors, with no cap on the amount of holdings that can be opted to be sold each period. Traditionally, liquidity is capped at 5% of the fund’s NAV per quarter, and creates risks that orders might not be fulfilled.
2: Reduced Performance Cash Drag
Registered private funds using Nasdaq’s exit feature are not susceptible to the same cash drag cost as found within classic structures. They can be 100% invested and provide the opportunity to generate higher returns. The exit feature enables shareholders to transact through a secondary marketplace facilitated by Nasdaq Fund Secondaries and not by fund re-purchases.
3: Improved Exit Experience for Investors
Nasdaq Fund Secondaries' exit feature can enable faster settlement, allowing shareholders to rebalance portfolios in as little as 2-3 weeks compared to 3-4 months on average in classic registered funds where liquidity is provided through a tender process run by the manager. At exit, shareholders can gain greater transparency into pricing, versus more opaque processes found in tender-only exit features.