One80’s next Reps and Warranties Awareness Campaign explores valuable insights regarding Secondary Private Investments and the potential opportunities they present within the market.
A Secondary Private Investment occurs when a Limited Partner (investor) or the General Partner (Manager) sells part of their stake in a Private Capital Fund or in a specific asset to a new investor before the natural conclusion of the Fund. While there is extensive literature on this subject, I’d like to focus on our interest at One80, which is to make insurance brokers aware of this market and the significant opportunities it offers.
The Market Need:
- In 2022, approximately $108 billion worth of secondary transactions were completed, and this trend shows no sign of abating.
- For insurance brokers, it’s crucial to engage with our private capital clients and their advisors to discuss insurance solutions that can be leveraged in these transactions.
The One80 solution:
- One of the most evident solutions for secondary transactions is Representation and Warranty (R&W) insurance. This becomes particularly relevant when a selling investor, especially a General Partner (G.P.), is required to make representations to the “buyer,” especially concerning operational matters. Unlike traditional acquisition transactions, these secondary deals do not require the same level of due diligence, and the representations are typically knowledge qualified, reducing the seller’s risk.
- Furthermore, secondary transactions involve at least three parties with knowledge: the selling fund, the investor, and the portfolio company(s) being purchased. The Subscription Agreement outlines the representations made to the buyer, as well as any tax elections that could impact the new owner’s tax exposure to current or prior tax positions.
- The good news is that R&W insurance serves as a valuable tool, allowing both parties to complete the transaction without taking on unforeseen risks. Additionally, underwriters understand that these transactions are less complex than traditional R&W placements, resulting in a premium that is 20% to 35% lower and reduced due diligence requirements.
If you have any questions or would like to further explore these opportunities, please don’t hesitate to reach out to us at One80. We are here to assist you in navigating this dynamic market.