The problem with being a private equity investor is that you're subject to long lockups for withdrawing money--sometimes up to 5 years.
That wasn't much of an issue back in the halcyon days for PE firms--say three or four years ago--when investors could regularly look forward to high double-digit rates of returns. But today those long lockups are feeling like balls-and-chains, with PE firms having to take writedowns on their portfolio investments and investors seeing returns sag.
Of course, one way an investor can try to get out a PE fund is by selling his or her limited partnership interest at a discount in the secondary market. But the trouble with the secondary market is that a PE firm's masters must sign-off on any transfer of an ownership interest. In good times, PE firms usually don't object much. But in hard times, the PE overlords are reluctant to approvate partnership transfers--especially if they are sold at a considerable discount.
But some clever secondary market buyers have come up with an exit strategy that essentially keeps the PE firm in the dark about their investors' intentions. In essence, what these secondary buyers do is enter into a contractual swap agreement with a PE investor looking to get out a fund. The PE investor, in return for a cash payout, agrees to transfer any economic benefit he or she gets from the fund to the secondary market buyer. The PE investors legally remain a limited partner in the fund---but in name only.
Now for obvious reasons, secondary market buyers don't like to talk about these arrangements. But they are happening with greater frequency. I've gotta say there's some poetic justice in investors getting a chance to pull the wool over the eyes of these much hyped titans of finance.