Nasdaq Private Markets
On March 8, Nasdaq announced a milestone in the development of the private capital markets. With critical new regulatory approvals in hand from the SEC, IRS, and FINRA, it is expanding its highly successful private company auction marketplace to cover a broad range of non-public investment vehicles, including private equity, hedge, feeder and interval funds, as well as an important new type of regulated investment company.
We understand all the implications and details of the new system, and can make it work for you: as a Senior Advisor and Director of Nasdaq Private Markets, our founder has been integral to the project from inception. If you’d like to learn more, please contact us or visit the Nasdaq site.
The implications of this marketplace are profound for investors, fund managers, advisors, and distributors. While public markets solve the fundamental mismatch between investors’ time horizons and longer term ventures for many sorts of economic activities, that mismatch has remained a basic hurdle to investment through private vehicles. As a result, most categories of investors, from defined contribution plans to affluent individuals, have been unable to participate in core institutional investment strategies, from infrastructure and real estate development to buyouts and private growth capital.
Nasdaq is surmounting this challenge in the time-tested way: through a marketplace. Its auction system is designed to discover and deliver fair value to sellers through layers of potential buyers sharing centralized information, market makers, and, for most issues, an embedded arbitrage opportunity that strongly encourages auction prices to approximate fund NAV (much as ETFs do). Critically, Nasdaq is also clearing the trades and communicating directly with fund administrators regarding ownership changes, radically simplifying the settlement processes.
Previous efforts to afford investors systematic liquidity in private funds have focused on use of the investment product’s own capital; but the resulting cash drag significantly lowers returns. Even more basically, such systems have experienced well-known failures in periods of market stress. Nasdaq’s approach is much more efficient and robust.
Aside from typical limited partnership interests, the system handles tax-qualified regulated investment companies, with their important investor benefits: independent fiduciaries, prohibitions on conflicts, style and vintage diversification, absence of capital calls, and 1099 tax treatment. These vehicles also eliminate key technical hurdles to investment by target date funds and IRAs, such as unrelated business Income issues and the plan asset rules. And because they are “evergreen,” they tremendously simplify a manager’s fundraising efforts.