Palico, a digital secondaries platform for trading smaller private capital fund stakes, has received regulatory approval from FINRA to become the first and only electronic trading system for LP-led secondary transactions.
With this authorisation, US entities will be able to execute the buying and selling of private equity fund interests on a secondary basis. Palico will now develop its platform to allow the execution of end-to-end LP-led secondary deals for launch by the end of summer.
FINRA is the US-authorised body which aims to protect investors by regulating the broker-dealer industry to make sure it operates fairly.
With the authorisation by FINRA, Palico is expected to attract more LPs, GPs and new investors to the secondary industry. Since Palico focuses on smaller to medium-stake transactions, the influx of LPs and GPs is likely to include new entrants to the sector, particularly family offices, high-net-worth individuals, endowments, foundations, pensions and corporates with smaller lines to divest.
Amid ongoing exit challenges, LPs are increasingly turning to secondary markets to generate liquidity. The first half of 2024 saw a 73% year-over-year increase in secondaries volume compared to H1 2023, reaching $73bn from $42bn. Historically, higher volumes occur in the second half of the year, supporting projections of $125bn-$140bn for 2024 as predicted by the likes of PJT Partners and Campbell Lutyens.
LP-led transactions accounted for 57% of H1 activity, totalling $41bn – the highest H1 volume ever for this deal type, according to Evercore. In 2024 so far, 50% of sellers on the Palico platform were first-time sellers, up from 37% in 2023, highlighting the growing sector interest.
