How does a secondary market form?
Secondary markets provide liquidity to private equity investors. The market facilities a trade whereby holders of private equity are able to sell their position to a buyer.
In an age where large private companies are able to attract significant levels of private equity funding, capital requirements are often satisfied through venture placements in exchange for company share equity.
Maintaining a private company status is more preferable to companies whose cash flow from operations is sufficient to facilitate growth. Traditionally, private companies would raise capital by listing on a public stock exchange, however, once publicly traded all manners of the business are exposed to the public domain.
Liquidating private placements
As such, many private companies seek to raise capital through private channels. Private equity in this instance is an illiquid asset class as investors have no way of liquidating their holdings through a public exchange.
As more private companies guard their private status for longer periods of time, secondary markets have become an essential tool to facilitate private equity trade.
Private clients, family offices and institutions
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