New York -- This year is expected to be big one for secondary transactions and SecondMarket Inc. wants a piece of that, by helping buyers and sellers to navigate a tricky tax issue. The company has started an exchange for limited partnership interests in private equity, venture capital and hedge funds.

Some have predicted secondary volume of up to $30 billion this year as LPs are desperate to get out from under suffocating capital calls. Apart from pricing, however, there is a big catch: the Internal Revenue Service commonly restricts the percentage of interests in a fund that can change hands in a given year to 2%.

If that amount is exceeded, the IRS could deem a fund to be a publicly-traded partnership, subjecting it to higher taxes. This has caused some general partners to put LPs seeking to sell stakes in a queue. Some say they're already seeing lines stretching into 2010.

That's where SecondMarket and others like it - NYPPEX, for one - come in. The IRS raises that limit to 10% if the interests change hands through a qualified matching service. The company doesn't yet have a ruling from the IRS stating that it is indeed a qualified matching service, but Jeffrey Bollerman, a director with the company, said it's following procedures in running the exchange that effectively make it so.

SecondMarket is attempting to work with GPs, as well as buyers and sellers, since it's ultimately up to the firm itself whether or not to sign off on the deal.

SecondMarket said it has $500 million worth of investor interests for sale, under half of which are PE. The interests are posted with an ask price and buyers are invited in, through a matching system, to bid through a silent auction. No deals have been struck yet. The firm will receive commissions of 2% to 5%.

The company has been around since 2004 and started out dealing in auction-rate securities, bankruptcy claims and other illiquid assets. Bollerman joined last week from Citigroup's global wealth management team. He also previously worked with Ropes & Gray LLP in fund formation.

SecondMarket plans to launch markets for collateralized debt obligations and mortgage-backed securities during the first quarter.

Reach SecondMarket at 212-668-5920.