Secondary market for closed funds
The secondary market for closed-end funds is a market in which company shares (usually limited partner shares) in existing closed-end funds are traded during the term.
Historical development of the secondary market
For a long time, units in closed-end funds were difficult to sell due to the fund design (maturity usually over 10 years) and the lack of a demand market. In order to be able to leave the fund company, sellers had to laboriously find a buyer who was willing to buy their share (for example by placing a newspaper advertisement).
This is where the existing secondary market concepts come in, which promise a seller a faster and more convenient sale of his share. In particular, if there are always a large number of potential buyers in the respective secondary market, prices that are in line with the market and reasonable can be achieved.
The price is based on supply and demand. So far, no fully functional secondary market has been established for all shares, even if there have been a large number of attempts to do so. There are now a number of platforms on which almost all shares in closed funds ( ship funds , real estate funds , private equity and many more) can be traded. This secondary market is maintained by various issuing houses, brokers and institutional investors. Private as well as institutional investors (e.g. secondary market funds) act as buyers.
However, the market is still characterized by imbalances between suppliers and buyers. Due to the poor liquidity and the lack of comparability of the funds, however, market prices are still not guaranteed. The trade is not subject to any state control.
Trading channels and pricing of closed funds
Various trade routes have now been established. For this purpose, some providers have set up trading platforms on the Internet on which the shares to be sold are listed. The pricing procedures vary from provider to provider. In addition, not all common market segments are traded on every platform. Other institutions, on the other hand, submit direct offers to buyers upon request. There are various options with regard to pricing. A distinction is made between three procedures: the bidding procedure, the unit price procedure and the fixed price procedure. In the bidding process, the seller often specifies a minimum bid. Prospective buyers can then submit bids on the participation until the end of trading. The highest bid wins the bid. With the uniform price procedure, however, the bids are initially collected in a non-public order book. After the trading period has expired, the surcharge is made at the price that leads to the greatest possible turnover (principle of highest execution). Some providers have modified this system by keeping a public order book on the Internet and, if there is an agreement, shares trading is carried out directly. In the case of the fixed price procedure, on the other hand, prospective sellers are presented with a time-limited purchase offer for their participation.
Some providers provide prospective buyers with additional calculation aids (fund calculator) for individual pricing, which can be used to calculate various sales scenarios based on the income value method.
Legal processing
Colloquially, one also speaks of trading in used parts of closed holding companies. If the seller and buyer agree on the purchase price and the transfer date, a purchase contract is drawn up that regulates the rights and obligations of the parties involved. The stake is then transferred to the buyer after the purchase price has been paid by the trustee of the relevant company.
In terms of tax law, the transfer of the shares is to be assessed separately so that a transfer does not always have tax effect, especially if profits or losses are to be postponed ( see abuse of legal structuring options ).
From the buyer's point of view
In principle, closed-end funds are designed in such a way that the shares in the company are held for the entire term. An early sale can be associated with financial disadvantages. However, a sale may make sense due to liquidity requirements or other planned use of the funds. If the investment company has had a successful economic development to date, the purchase prices are usually significantly higher than if the economic development was previously negative. A rationally acting buyer will determine his purchase price bid on the basis of the actual situation of the holding company (existing assets, liquidity status, repayment status, etc.) and his future expectations (income expectations, expected cost and exchange rate developments, assumed sales proceeds of the assets, etc.).
The main problems when selling company shares are
- the achievement of a market price,
- the possible loss of recognition of tax losses,
- It is not always possible to transfer all economic risks, in particular obligations to make additional payments, to the buyer,
- there are often sales restrictions in the articles of association.
In particular, the underlying articles of association often stipulate a requirement for consent, so that transfers between two contracting parties may only be concluded subject to the consent of the holding company. As a rule, consent can only be refused for “good cause”. Interestingly, an "important reason" may e.g. B. the acquisition of shares by competing companies of the provider. In some cases, the initiator of the holding company also has pre-emptive rights.
