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January 03, 2008

The Father of PE Secondaires

Dealmaker has a profile of Dayton Carr, the founder of New York-based VCFA Group, who is considered the "father of PE secondaries". (Secondary funds provide liquidity to limited partners by buying out their interests in PE/VC funds prior to the expiration of the funds' life terms.) Carr, who started out in the 1960s by managing a VC fund for IBM's Thomas J. Watson Jr., founded VCFA Group in 1982.
Calling the $2 million operation — essentially a fund of public and private placements owned by Watson — Carr Management Company, the young dealmaker navigated his way to solid returns. At the end of 1979, Carr bought out his boss after President Carter appointed Watson ambassador to the Soviet Union, then sold a majority of the remaining holdings. “I saw firsthand that by coming in at a later stage, when some of the rough patches had started to smooth out, and at a discount, I achieved around a 60 percent return.”

...VCFA has since taken stakes in some 200 funds both large and small. Typical deals are in the neighborhood of $5 million to $20 million. Carr recalls the time in 1988 when the firm bought out a wealthy investor in the Charles River Ventures Fund. “We bought the stake at a small discount,” he says. “The ROI ended up being around 200 percent.”

...There are bigger secondary-market operations than VCFA — Jeremy Coller’s $5 billion Coller Capital, for example — but Carr views the market as still nascent at best. Total worldwide private-equity fund assets now stand at around $1.1 trillion, with nearly 70 percent of that in buyout funds. As a percentage of worldwide private-equity assets, however, the secondary market is a mere drop in the ocean at just 2 percent.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.