Secondaries
Secondaries are transactions where investors buy or sell existing interests in private funds or portfolios, rather than committing to new primary funds.
Allocator relevance: A liquidity and vintage management tool—can rebalance exposure, accelerate DPI, or reduce overcommitment risk.
Expanded Definition
Secondaries include LP interest purchases/sales, GP-led continuation vehicles, and direct secondaries in company shares. They can provide faster deployment and earlier cash flow than primaries, sometimes at discounts to NAV. Risks include adverse selection, complex structures, and valuation uncertainty.
Allocators use secondaries to manage portfolio construction, reduce liquidity mismatch, and adjust exposure during market dislocations.
How It Works in Practice
Buyers underwrite underlying assets and fund terms; sellers trade for liquidity or rebalancing. Pricing depends on NAV quality, asset mix, and market conditions. GP-led processes may involve conflicts and require governance scrutiny.
Decision Authority and Governance
Governance is crucial in GP-led deals due to conflicts, valuation, and fairness issues. LPAC often plays a role in approvals and oversight.
Common Misconceptions
- Secondaries are always “discounted bargains.”
- Secondaries eliminate J-curve completely.
- NAV is a reliable pricing anchor in all markets.
Key Takeaways
- Secondaries are a portfolio management tool, not just an asset class.
- Underwriting the underlying assets matters most.
- Governance and conflict scrutiny are non-negotiable in GP-led deals.