Is There Only One Right Way To Provide Liquidity?

I came across a blog post titled Mini-Tenders by MacKenzie (and Other Bad Actors) are a Losing Proposition for Shareholders on the website of Rialto, Inc., a “next generation marketplace.”  Apparently, Rialto provides a platform for buyers and sellers of non-traded assets to meet and negotiate the exchange of units for which there is no formal market.  This is a valuable service to the market, and I hope to see them succeed and thrive in the marketplace.

MacKenzie Capital Management is an asset manager that has provided liquidity for non-traded securities for some 25 years. The primary mechanism for providing this liquidity has been the so-called mini-tender, in which they offer a fixed price for up to just less than 5% of the outstanding units.  This allows investors who do not qualify for the automatic redemption (on death, disability, etc.) to liquidate their units to meet some need. 

MacKenzie is a profit seeker, just like all other market participants.  The lower the price that they pay for an asset, the greater their profit.  But MacKenzie makes no profit on units that they do not purchase.  Therefore, they need to price their tenders at least attractive enough to attract some sellers.  They pay the same price for all units tendered.  And their longevity creates confidence that the sale will close.  All of these elements are valuable in a transaction.  A transaction that any investor can easily decline by discarding the correspondence.

Is MacKenzie aggressive in its correspondence?  That’s a fair assessment.  However, all of the factual information in tenders that I have reviewed has been true.  MacKenzie does highlight the negatives and emphasize the risks because this what their solution is for.  This does not make them a Bad Actor.  This makes them an aggressive market participant.  Just like Rialto.

Over my career, I have seen many firms attempt to bring some liquidity for non-traded securities. They have taken two general forms represented by Rialto and MacKenzie: an auction platform or a deep value investor.  There have been successes among the representatives of both models, as well as some disappointments.  Each has a role to play.  I would check out both if a client has an urgent need for liquidity.  You might check out Central Trade and Transfer and Signal Securities while you’re at it.  Options are a good thing when you are trying to execute an unusual trade.

Edit (8/17/22):  Another participant has been brought to my attention.  Alternative Liquidity Capital has recently begun offering tenders for non-traded securities.  Alternative Liquidity’s website shows four tenders that are currently open.