GP-Led Secondaries

March 2023

General Partner-led (“GP-led”) Secondaries offer the option for Limited Partners (“LPs”) to achieve full or partial liquidity on their fund interests, while a General Partner (“GP”) often gets the opportunity to secure additional time and capital to maximize the value of a fund’s remaining asset(s). In recent years, as the secondaries market flourished, the profile of such transactions has changed. No longer solely the domain of troubled managers and poorly performing assets, GP-led secondaries transactions are increasingly common in the private equity industry.

It is not uncommon for one or more assets in a private market portfolio to linger on past the end of the expected life of a partnership. This presents a challenge for LPs who want to re-invest their capital, and minimize their oversight and reporting requirements. Historically, some LPs would address this problem by selling their stakes in the secondary market. However, some GPs decided they could meet the needs of these LPs while potentially improving the return prospects for their remaining LPs on these last few assets by engaging in what has become known as a GP-led secondary sale.

GP-led secondaries involve a GP leading a sale process to provide liquidity to LPs in one or more of their funds while retaining ownership of an asset or group of assets, usually in a new vehicle. GP-led transactions were once perceived as a way for underperforming managers to hold on to assets and therefore extend the life of their franchise. However, in recent years these deals have been utilized by GPs as a flexible means to hold on to key assets that are often top performers – giving them further time and capital to potentially generate additional value. As a result, while the stigma associated with such deals has diminished, their increasing prevalence raises questions for many LPs, specifically around a GP’s plan and their alignment of interest when it comes to managing these assets.