Secondary Solutions in Asia: Navigating Regulatory Clampdowns

Summary

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• Asia has seen strong growth in the demand for bespoke secondary solutions over the last 12 months and this is expected to continue in 2023 and in the near future, coinciding with increased regulatory and investor scrutiny
• The SEC acknowledges the potentially beneficial nature of GP-led secondaries, which have the potential to be viable liquidity alternatives for underlying funds
• A primary source of concern for the SEC when it comes to GP secondaries solutions is the actual and potential conflicts of interest

In the midst of a global recession and limited liquidity for private companies, many GPs are looking to secondary markets for additional liquidity alternatives.  Asia, in particular, has seen strong growth in the demand for bespoke secondary solutions over the last 12 months, with this trend expected to continue in 2023 and beyond.  However, the rise of secondary transactions coincides with increased regulatory and investor scrutiny.

• Recent SEC developments

On May 3, 2023, the SEC announced its final rule (SEC Final Rule) regarding certain amendments to Form PF, a confidential reporting form for registered investment advisers (RIAs). These amendments include a new requirement for all RIAs of private equity funds to file a new event report upon the closing of a GP-led secondary transaction within 60-days of the applicable fiscal quarter end.  Such reporting must include the closing date and a brief description of the transaction.

The SEC Final Rule sheds light on the SEC's thinking in connection with secondary transactions and solutions, in particular those initiated by the GP