Glossary · Performance & benchmarking
Secondary Pricing
Secondary pricing is the convention of quoting a private fund interest's price as a percentage of its NAV at a stated reference date, adjusted for cash flows to closing, with the unfunded commitment assumed separately by the buyer.
Buyers and sellers of fund stakes do not quote prices per unit; they quote a percentage of the fund's reported value on a specific date, for example 90% of NAV. Money paid into or out of the fund after that date is settled at closing. The buyer also agrees to meet any capital the fund calls in future, which adds to what it has at risk but is not part of the price.
Formulas
Price at the reference date and discount
- NAVref
- the interest's reported NAV (capital account) at the NAV reference date
- p
- price as a percentage of NAV, the quoted figure (for example 90%)
- d
- discount to NAV; a negative d is a premium
The market quotes p ("90% of NAV"); "a 10% discount" is the same price. The reference date is part of the quote.
Closing payment and buyer's exposure
- C
- capital calls funded by the seller between the reference date and closing
- D
- distributions received by the seller between the reference date and closing
- Uclose
- unfunded commitment remaining at closing, which the buyer assumes
- E
- buyer's total committed outlay from closing: cash paid plus future calls
Adjustments are usually dollar for dollar (not multiplied by p), but the purchase agreement governs and may add other items.
Effective price with deferred payment
- Pk
- instalment k of the purchase price
- tk
- time of instalment k in years after closing
- r
- the discount rate the analyst chooses (for example the seller's opportunity cost or the buyer's financing cost)
Annual compounding, with tk in years from closing (fractions allowed) and the present value taken at closing. The effective discount depends on the chosen rate; there is no single market rate. State it.
The quoting convention
A secondary price for a fund interest is a percentage of the interest's net asset value at a named NAV reference date, normally the most recent quarter-end for which the GP has reported. The reference date fixes the economic transfer: from that date the buyer bears changes in value, so calls the seller funds afterwards are added to the price and distributions the seller receives are deducted at closing. Two quotes are comparable only if they share a reference date, or after allowing for what happened between the dates.
The unfunded commitment
The unfunded commitment is not part of the price, but the buyer must meet it, so it is part of the buyer's exposure. For a young fund the unfunded amount can exceed the price several times over, and the buyer is effectively making a primary commitment as well as buying assets. Buyers price both parts: the expected value of the existing portfolio and the expected return on capital still to be called. That is why two interests with the same NAV and similar assets can trade at different percentages.
What drives the price
A bid is the present value of the buyer's forecast of the interest's future distributions less future calls, at its target return, expressed as a share of NAV. The main inputs are the quality, maturity and expected exit timing of the underlying companies; the GP's record and reporting; fees and carried interest still to be paid (LP capital accounts usually already reflect carry accrued on a hypothetical liquidation, but not carry on future gains); borrowing at fund level, including subscription lines and NAV facilities; concentration; how stale the reference NAV is relative to market moves since; deal size and complexity; and the competitiveness of the process.
NAV Discount and Premium
The discount to NAV is one minus the price divided by NAV; a premium is the reverse case, a price above NAV. Market practice quotes the price ("92% of NAV") rather than the discount ("an 8% discount"); both describe the same trade.
A discount is not proof that the NAV is wrong. NAV is the GP's estimate of fair value, which International Financial Reporting Standard (IFRS) 13 and the US Accounting Standards Codification (ASC) Topic 820 both define as an exit price: the price that would be received to sell an asset in an orderly transaction between market participants on the measurement date. A secondary price also reflects the buyer's required return, the time until cash comes back, fees and carry still payable, the unfunded commitment, the information gap between seller and buyer, and the seller's need for liquidity. Premiums occur when buyers compete for access to particular managers or assets, or expect the NAV to rise.
The same term has a second, distinct usage for exchange-traded vehicles. Listed private equity companies, investment trusts and other closed-end funds publish a NAV per share, and their shares trade on exchange at a price that can sit above or below it. The arithmetic is identical, but the drivers differ: a daily market price is compared with a NAV that is reported with a lag, and the gap also reflects the vehicle's fees, gearing, share buybacks and investor demand. A listed vehicle's discount does not measure the price at which its underlying fund interests would trade.
Deferred payment and other structures
Sellers sometimes accept part of the price later, typically in instalments over one or two years after closing. The headline percentage then overstates the value of the consideration; the present value of the instalments is the effective price. The effective discount depends on the discount rate chosen and on the buyer's credit, since a deferred payment is an obligation of the buyer. Other structures that change the effective price, such as buyer-side financing, seller-retained interests and preferred equity, are covered under structured secondary.
Accounting effect for the buyer
Under US accounting standards an investor may, if specified conditions are met, measure the fair value of an interest in a fund within the scope of ASC 820-10-15-4 to 15-5 using the fund's net asset value per share or its equivalent, such as an ownership interest in partners' capital, as a practical expedient (ASC 820-10-35-59; see NAV as practical expedient); investments measured that way are not categorised in the fair value hierarchy (ASC 820-10-35-54B). IFRS has no equivalent practical expedient. If a buyer pays 85% of NAV and then measures the interest at the reported NAV, the 15% difference appears as an unrealised gain at the next measurement date. That gain is an accounting effect until cash is realised. Whether a particular buyer or seller may use the practical expedient, or must instead measure fair value directly, is a judgement for its valuation policy and auditors.
Published pricing data
Average pricing levels by strategy and period are published mainly by secondary advisers and intermediaries from their own transaction samples. Methods and samples differ, so their figures are not directly comparable, and this entry does not reproduce them.
Worked examples
Illustrative price, discount and exposure ($ millions)
An interest has a reported NAV of $100m at the reference date and $20m of unfunded commitment. A bid of 90% of NAV is a price of $90m, a 10% discount. The buyer's total exposure is $110m: the $90m price plus $20m of future capital calls it must meet.
Price and reference-date exposure
Reference-date NAV is $50m, unfunded commitment $12m, agreed price 85% of NAV: $42.5m, against a reference-date exposure of $54.5m.
Adjusting to closing
Before closing, the seller funds a $3m call and receives a $5m distribution. The closing payment is 42.5 + 3 − 5 = $40.5m. The unfunded commitment falls to $9m, so the buyer's committed outlay from closing is $49.5m: the $54.5m reference-date exposure less the $5m distribution credited to it.
A premium
A bid of 105% of a $100m NAV is a price of $105m: a 5% premium, entered as a discount of −5%.
Deferred payment and the effective discount
The headline price is 90% of a $100m NAV, but only $45m is paid at closing; the other $45m is paid one year later without interest. Discounted at 10% a year, the payments are worth 45 + 45/1.10 = $85.9m: an effective price of 85.9% of NAV and an effective discount of 14.1%, against a headline discount of 10%. At a lower discount rate the gap narrows.
Listed vehicle discount to NAV
A listed private equity company publishes NAV of $10.00 per share; its shares trade at $8.00. The shares trade at 80% of NAV, a 20% discount.
Examples are illustrative; figures are not market data.
Not the same as
- Net Asset Value (NAV): NAV is the GP's reported value of the interest; the secondary price is what a buyer pays for it, quoted against that NAV.
- NAV Reference Date: The reference date is the valuation date the price is quoted against; the price is the negotiated percentage applied to it.
- Fair Value: Fair value is an accounting measurement at a measurement date; a secondary price is a negotiated transaction price that may or may not be evidence of fair value.
Common mistakes
- Comparing two quoted prices without their reference dates.
- Including the unfunded commitment in the price, or ignoring it when comparing bids.
- Applying the purchase percentage to post-reference-date calls and distributions; they are usually settled dollar for dollar.
- Quoting the headline price when part of it is deferred.
- Reading a discount as proof that the NAV is overstated.
- Treating a listed private equity vehicle's discount to NAV as the discount at which its underlying fund interests would trade.
Edge cases
- Large distributions between the reference date and closing can reduce the closing payment to near zero or below; the purchase agreement must say how a negative balance is settled.
- If the GP restates the reference-date NAV after signing, the purchase agreement decides whether the price changes.
- Interests with little NAV and large unfunded commitments are priced mainly on the expected return of future calls; the percentage of NAV becomes unstable and can be very high or negative.
- Distributions in kind between the reference date and closing need a valuation for the adjustment.
Questions
How is a secondary discount calculated?
Discount = 1 − price / NAV, with NAV taken at the reference date stated in the deal. A price of 88% of NAV is a 12% discount. Adjust for calls and distributions after the reference date and for any deferred payment before comparing deals.
Is the unfunded commitment included in the secondary price?
No. The buyer pays the price for the funded interest and separately takes on the obligation to meet future calls. Both belong in the buyer's exposure and return analysis.
Why do listed private equity vehicles trade at a discount to NAV?
Their shares are priced daily by the market against a NAV reported with a lag, and the gap also reflects fees, gearing, buybacks and investor demand. It is a separate market from fund-interest secondaries, although the arithmetic is the same.
External standards
| Standard | Relation | Note |
|---|---|---|
| IPEV Valuation Guidelines (2025 edition) (Fair Value definition) | related | Defines the valuation basis of the NAV that secondary prices are quoted against. |
| ASC 820 (ASU 2015-07) (NAV per share practical expedient, ASC 820-10-35-59) | related |
Sources
- International Private Equity and Venture Capital Valuation Guidelines (2025 edition). IPEV Board, IPEV, Published 11 December 2025; in effect for quarterly reporting periods beginning on or after 1 April 2026; early adoption encouraged. Status: Current; supersedes the December 2022 edition (checked 2026-10-01). Fair Value definition; in effect for periods beginning on or after 2026-04-01 — supports: Basis of reported NAV
- ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. Financial Accounting Standards Board, May 2011. Status: in force (codified in ASC 820) (checked 2026-10-01). ASC 820-10-35-2 as amended by ASU 2011-04 — supports: US GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
- ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Financial Accounting Standards Board, May 2015. Status: in force (codified in ASC 820) (checked 2026-10-01). ASC 820-10-35-54B as amended; 'Who Is Affected' (practical expedient in ASC 820-10-35-59, scope ASC 820-10-15-4 to 15-5); background ('IFRS does not provide a practical expedient') — supports: NAV per share (or equivalent, e.g. ownership interest in partners' capital) practical expedient; such investments are not categorised in the fair value hierarchy; IFRS has no equivalent expedient
- IFRS 13 Fair Value Measurement. IFRS Foundation / International Accounting Standards Board (IASB), Issued May 2011 by the IASB; later consequential amendments (IAS 19 2011, Annual Improvements 2011-2013, IFRS 9 2014, IFRS 16 2016, IFRS 18 2024, IFRS 19 2024). Status: in force (checked 2026-10-01). Standard summary page: definition of fair value (exit price) — supports: Fair value as the price received to sell an asset in an orderly transaction between market participants at the measurement date