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Setter Capital Liquidity Rating

Setter Capital covers over 7000 institutional investors in alternative investment funds, over 900 buyers of funds, more than 2000 opportunistic sellers, and their buy and sell interest in more than 3000 fund families. In the course of monitoring this secondary market activity, Setter has developed a unique measure of the relative liquidity of fund investments, termed the Setter Liquidity Rating™, whereby certain fund families 1 receive a rating of ’Good‘, ’Very Good‘, ’Excellent’ or ‘Unrated’.

Setter Liquidity Rating™ is largely determined by the number and strength of potential buyers (i.e. those who have shortlisted the fund, are current investors or who have recently priced the fund) for a secondary of a fund. The rating is adjusted downward in the presence of factors that negatively impact liquidity such as the manager being relatively more restrictive on transfers. The rating is also influenced to a certain extent by Setter Capital’s subjective view on the composition and strength of buyer demand for a given fund family.

What does a rating of Good, Very Good, Excellent or Unrated mean?

Generally, a ‘
Good’ rating suggests that there are many potential buyers, (typically 20+) that are interested to bid on a fund within the fund family. ‘Very Good’ and ‘Excellent’ denote progressively stronger potential demand. ‘Unrated’ fund families are less targeted by buyers and/or have fewer buyers within their existing investor base or for which there is simply not enough data points because they rarely come up for sale.

Possible Interpretations of a Setter Liquidity Rating™:
From a seller’s perspective, a higher
Setter Liquidity Rating™ suggests a number of benefits. First it means that they can create competitive tension in a sale process since there are a number of potential buyers for their fund. For this reason the Liquidity Rating correlates strongly with price, though in many cases funds that are unrated may price better than rated funds simply because the rated fund may not be as highly regarded in spite of having many buyers. The second benefit of a higher Liquidity Rating for a seller is that bids are more readily available, making a sale process easier and quicker. The seller can be more selective about counterparties, potentially choosing to work only with buyers who are existing investors or who have binding bids in hand. A final benefit of a Liquidity Rating for sellers is that the market can more readily absorb multiple sellers or larger commitments simultaneously with less downward pressure on price.

A Liquidity Rating could also be a useful metric for new investors in funds and secondary buyers of funds. From a new investor’s perspective, a Liquidity Rating suggests that the relative liquidity of the fund will likely be higher than its unrated peers in the event they need to consider a sale in the future (provided of course that the Liquidity Rating does not decline in the future).

From a buyer’s perspective, a
Setter Liquidity Rating™ suggests the market is more competitive and efficient, putting downward pressure on returns but perhaps suggesting also a less risky investment from a resale/liquidation perspective.

Setter Liquidity Rating™ is to be used as a point of reference only and should not be relied upon to make an investment decision. An investor should independently determine the potential liquidity of a fund.

Where can you find the Setter Liquidity Rating?
Setter Liquidity Rating™ can be found at www.secondarylink.com/funds where you can search over 4000 fund families and their associated rating.

The following are some examples:

Mega LBO Funds Liquidity Rating

Apollo Excellent
Bain Capital Excellent
Blackstone Excellent
Carlyle Partners Excellent
Clayton Dubilier & Rice Excellent
KKR Excellent
Madison Dearborn Excellent
Providence Equity Excellent
Silver Lake Partners Excellent
Thomas H Lee Excellent
TPG Excellent

Midmarket/Growth Funds Liquidity Rating

ABRY Excellent

Advent Global Excellent

Berkshire Partners Excellent

Green Equity Investors Excellent

Hellman & Friedman Excellent

Kelso & Company Excellent

New Mountain Capital Excellent

Riverside Capital (RCAF) Excellent

Summit Partners Excellent

Warburg Pincus Excellent

Welsh Carson (WCAS) Excellent

Distress-Credit Funds Liquidity Rating
Ares Corporate Very Good
Cerberus Institutional Very Good
Fortress Credit Good
HIG Bayside Very Good
Lone Star Very Good

OCM Opportunities Excellent
Sun Capital Excellent

Venture Funds Liquidity Rating
Accel Partners Very Good

Benchmark Very Good

Index Ventures Good

Matrix Partners Good

Menlo Ventures Good

New Enterprise Associates Very Good

Oak Investment Ptrs. Good

European LBO Funds Liquidity Rating
Apax Europe Excellent
Bain Capital Europe Excellent
Bridgepoint Europe Excellent
Carlyle Europe Partners Excellent
Charterhouse Capital Excellent
Cinven Excellent
CVC Europe Excellent
EQT Excellent
KKR Europe Excellent
Permira Excellent

Asia Pacific Funds Liquidity Rating

Bain Capital Asia Very Good

Baring Asia Very Good

Carlyle Asia Partners Very Good

CDH China Fund Excellent

CVC Asia Excellent

Hony Capital Very Good

Ironbridge Very Good

KKR Asia Very Good

Pacific Equity Partners Excellent

TPG Asia Very Good

Infrastructure Funds Liquidity Rating
Alinda Infrastructure Good
Arcus European Infra Good
Cube Infrastructure Good
Dutch Infrastructure Fund Good
Energy & Minerals Group Good
EQT Infrastructure Good
GS Infrastructure Partners Good
Highstar Capital Good
MEIF (Macquarie) Very Good

MIP (Macquarie) Good

MSIP (Morgan Stanley) Good

RREEF Infrastructure Good

US Power Very Good

Real Estate Funds Liquidity Rating

Beacon Capital Very Good

Blackstone (BREP) Excellent

Carlyle Realty Very Good

LaSalle Asia Very Good

Starwood Very Good

TA Realty Associates Very Good

Tishman Speyer Europe Very Good

Walton Street Very Good

Energy Funds Liquidity Rating

EnCap Very Good

Enervest Very Good

First Reserve Excellent

Kayne Anderson Very Good

LS Power Excellent

Natural Gas Partners Excellent

Riverstone Energy Excellent

1. A fund family is a series of funds managed by a single fund manager with a common strategy. For simplicity, fund families are rated rather than specific funds within a family. Setter Capital has found that on a relative basis, if a specific fund is popular or there are many existing investors then the liquidity of prior, subsequent or other funds of the same manager are correlated.

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