Secondaries
Secondaries provide exposure to existing private-market portfolios through LP interests or GP-led transactions, often with shorter duration and increased visibility. Allocators evaluate secondaries through pricing discipline, underwriting rigor, and sourcing advantage.
Secondaries investing purchases existing private fund interests (LP-led) or participates in GP-led solutions such as continuation vehicles. Allocators use secondaries to manage private-market pacing, reduce blind-pool risk, and improve cash-flow profiles—when pricing and underwriting are disciplined.
How allocators define Secondaries exposure
Allocators segment by:
- Deal type: LP-led vs GP-led
- Portfolio maturity: early/mid/late; remaining duration
- Pricing: discount/premium to NAV and underwriting justification
- Concentration: top funds/assets and single-name dependency
- Leverage: fund-level or portfolio financing and its fragility
- Complexity: governance, conflicts, information rights, consent terms
The allocator question becomes:
“Are we buying value at the right price with enough control and information?”
Core strategies within Secondaries
- LP-led secondaries: buying fund interests from LP sellers
- GP-led secondaries: continuation vehicles and single-asset deals
- Structured secondaries: preferred/financing solutions with contractual downside
How Secondaries fit into allocator portfolios
Used to:
- Reduce J-curve and accelerate distributions (strategy-dependent)
- Rebalance vintage exposure
- Increase underwriting visibility versus primary commitments
- Add private-market exposure with better entry pricing (when available)
How allocators evaluate secondaries managers
Conviction increases with:
- Demonstrated pricing discipline (not “deployment at any cost”)
- Asset-level underwriting capability and data access
- Governance competence in GP-led conflicts and alignment
- Proven sourcing channels (not fully intermediated flow)
- Conservative assumptions on NAV marks and exit timing
What slows allocator decision-making
Diligence stalls due to:
- GP-led conflicts without clear alignment (pricing, rollover incentives)
- NAV reliance without robust downside underwriting
- Leverage that amplifies tail outcomes
- Complexity opacity: consent rights, valuation policies, information rights
Common misconceptions
- “Secondaries always buy at a discount” → discounts can disappear; underwriting matters.
- “GP-led is always worse” → GP-led can be attractive when alignment and pricing are strong.
- “NAV is a fact” → NAV is an estimate; marks lag and differ by policy.
Key allocator questions
- Why is the seller selling—and what does that imply?
- How is NAV validated independently?
- What is the downside if exits delay 12–24 months?
- What conflicts exist in GP-led deals, and who benefits?
- How much performance comes from discount capture vs true value creation?
Key Takeaways
- Secondaries are a pricing and governance business
- NAV validation and downside underwriting drive institutional trust
- GP-led deals require conflict literacy and alignment proof