Secondaries Investor Quotes Fadi Samman on Growing Regulatory Risks for the Secondaries Market

Akin Gump investment management partner Fadi Samman has been quoted by Secondaries Investor in an article looking at some of the regulatory risks confronting the secondaries market. According to the publication, the technical aspects of secondaries transactions are where most of the risks lie, particularly with regard to how an auction is run and how the price is determined.

Samman stated that running a fair auction process typically means 'hiring an intermediary to run an auction and to solicit multiple bids to get a market-driven price. Oftentimes,' he continued, 'GPs will also get a fairness opinion or an appraisal or other third-party view on the assets to help substantiate that price discovery.'

To manage expectations, Samman noted, managers are increasingly adding language to LP agreements to make it clear they may undertake GP-led processes. The addition of such language, he pointed out, has increased over the past two years and now appears in about half of agreements.

As for whether LPs can continue to operate at the status quo, Samman observed that, while the so-called status quo option was a 'fundamental piece of structuring a fair process, giving LPs the option to roll on a status quo basis' just a few years ago, 'that view seems to have shifted. … Increasingly we are seeing far fewer status-quo roll options in these transactions. They have not been eliminated, but we are seeing more and more deals without a true status quo option offered.'

Looking ahead to future potential enforcement, Samman stated that, while the SEC's regulatory focus pre-empted the preponderance of GP-led transactions that came to define the COVID markets, the increased usage will only inspire more scrutiny, not less.

'We have seen this happen in frothy markets before,' Samman added. 'My instinct says there will be enforcement actions.'