Public mutual fund marks and secondary market trade price diverge

In this short clip from our Q3 Forge Investment Outlook webinar, Andrew Alden, Senior Director of Quantitative Analytics, shares insights on how public mutual fund markets compare with secondary trade premiums and discounts.

Learn more about “The Great Reset” and find additional private market data in the Forge Investment Outlook report.

Dan ChaparianVP of Product Marketing, Forge

Besides right of first refusal data, another data point that Forge aggregates and shares back out with investors is what's known as mutual fund marks or the valuations that institutional investors are putting on the private companies that they hold in their portfolios. Now, since many of these mutual funds are managed by some of the world's largest institutions, their insight and their valuations can be used as a key component in understanding how the private market is doing today.

So, what are these mutual fund marks telling us about how the market overall is performing?

Andrew AldenSenior Director of Quantitative Analytics, Forge

Good question. This was actually something we looked at recently. And I think the findings are especially thought provoking.

In this chart, we show the quarterly median trade premium/discount on companies against the median premium/discount at which mutual fund managers are marking their positions. In 2020 and 2021, they priced very similar to each other. But in 2022, trade prices fell faster and further than mutual fund marks.

What I find especially intriguing here is that there's two possible interpretations. Number one, perhaps mutual fund managers haven't marked down enough. Anecdotally, we often think of them as being slower to Mark positions up and then perhaps slower to mark them down as well. But two, and conversely, this chart could also suggest that perhaps private markets have overreacted and oversold. Since mutual fund managers see financial statements and have a better sense for the intrinsic value of the company, perhaps their valuation is more appropriate than those trading in the secondary market, who often do not have the same visibility into the company.

Of course, naturally, it's possible that both are partially true. Maybe some mutual fund marks need to come down more and maybe some secondary market names have oversold as well. This is especially intriguing to consider against the backdrop of public markets, where 2023 tech performance is suggesting that the market probably did oversell there some in 2022. And we've not yet seen that rebound in the private markets.

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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Past performance Is not indicative of future results.