Private equity asset prices slide-survey

By Megan Davies

NEW YORK, Jan 5 (Reuters) - Prices of private equity assets sold in the secondary market have slumped to the lowest level recorded in three years of compiling data, a report by advisory firm Cogent Partners said on Monday.

Prices fell to an average 61 percent of net asset value (NAV) for the second half of 2008, down from 84.7 percent of NAV in the first half, Cogent said. At the peak of the private equity bubble in 2006-7, assets commanded prices above NAV.

Cogent, a sell-side adviser to institutional investors, said it was the lowest since it started publishing pricing data in 2005.

The secondary market allows the powerful investors in private equity funds, such as endowment and pension funds, to buy and sell those investments.

While the credit crisis put an almost immediate halt to leveraged buy-outs -- the bulk of the business for private equity houses -- the secondary market has been lively as large investors offload their exposure.

The range of bids that Cogent recorded for the assets was large, revealing that some firms value their portfolios more conservatively than others. Prices ranged from just 30 percent or less of NAV to 176 percent of NAV.

There is also a large disparity between the figures reported by private equity funds to their investors and the prices being offered in the secondary market, Cogent said.

Prices in the secondary market are at a 40 percent discount to the values reported by private equity funds, it said.

The disparity reflects the "unrealistic pricing levels at which funds continue to hold their investments," said Colin McGrady, managing director of Cogent, in a press release.

"The secondary market corrects for these fantasy valuations reported by general partners," he said in the release.

McGrady said he expected the reported values of private equity portfolios to fall after buyout firms do year-end valuations of their assets. Fourth quarter valuations are typically reported to investors from mid-February onward. (Reporting by Megan Davies; Editing by Brian Moss)