How Secondary AIF Units Are Priced

Secondary AIF unit pricing starts from the last reported NAV per unit, then adjusts for factors the reported NAV does not capture: how stale that valuation is, portfolio developments since the valuation date, remaining unfunded commitment, and the time value of an expected multi-year wait for full realisation.

A buyer typically demands a discount to compensate for illiquidity, the risk that reported NAV overstates true value, and the effort of underwriting an unfamiliar portfolio. A seller under time pressure to exit will generally accept a larger discount than one who can wait for a better offer.

The common failure is anchoring to the discount percentage alone without separately modeling what the remaining assets are actually likely worth. Two funds with an identical 20% quoted discount to NAV can represent very different actual value depending on portfolio quality and NAV staleness.

Both buyer and seller should independently model: the remaining portfolio's likely realisable value, not just its reported NAV; expected timing of remaining distributions; and any unfunded commitment obligations. Price should be negotiated from that independent model, with the quoted NAV discount used only as a starting reference point.

The right secondary price is built bottom-up from the remaining portfolio's likely realisable value, not derived top-down from a standard discount percentage.