Discount is a reference point, not an investment case
Secondary transactions are frequently discussed as a discount or premium to a reference valuation: the latest preferred round, an internal mark, NAV, or another observable transaction. That is useful context, but it is not sufficient underwriting.
Mercer’s work on GP-led secondaries makes the principle explicit: investor outcomes depend on a holistic valuation assessment rather than headline discount alone. Entry price interacts with operating performance, fees, leverage, governance, rollover and exit route. The exact variables differ in a direct company secondary, but the logic is the same.
Five questions behind the price
- What is the relevant reference value? The last primary round may be stale, structured or set in a different market.
- What has changed since that reference point? Revenue, margins, cash burn, financing needs, competitive position and product risk can all move.
- What exactly is being purchased? Common shares and preferred shares may have materially different economics and downside protection.
- How long is the capital likely to be locked? A longer or less certain path to liquidity changes the required return.
- What must be true at exit? Work backward from a plausible realization value rather than forward from a quoted discount.
Compare like with like before discussing the discount
A quoted discount to the last financing round is incomplete until the team identifies the security being offered. Common and preferred shares can carry different economic rights and different positions in a liquidity event. An interest held through a vehicle may introduce another layer of terms. The relevant comparison is the buyer's expected outcome from this position at this price.
Confirm the share class, preference and other applicable terms, and any financing that could change ownership before treating the old round price as a benchmark. See what a direct secondary buyer is actually acquiring.
Price is a compression of several risks
An entry price is effectively carrying a bundle of assumptions about future growth, dilution, financing, liquidity and exit. The more uncertain those assumptions are, the less useful it is to argue about price as a single number.
A secondary price is not attractive because it is lower than the last price. It is attractive if the return still works after the assumptions are made explicit.
When repricing is the right route
If the asset remains attractive but the return does not compensate for the current information, structure or duration, the right answer may be reprice rather than reject. That is a different diagnosis from a broken company thesis.
Key takeaway
The price question is inseparable from the risk question. Good secondary underwriting connects entry valuation to fundamentals, security, information, duration and exit rather than treating a discount as the conclusion.
Sources and notes
- Mercer, Private markets in motion: navigating secondaries — holistic valuation assessment beyond headline discount
- Lazard, Interim 2026 Secondary Market Report — 2026 pricing and underwriting context
- CAIA, Secondary Pricing as a Valuation Check — secondary pricing as a private-market price signal
- Forge, Common shares, preferred shares, SPV units and options — share and ownership distinctions