Secondaries & Special Situations (SSS)

Secondaries are not just “discount buying.” They are underwriting private market cashflows with enhanced information sets, structuring control, and differentiated entry points. GP-led secondaries introduce additional layers: conflict management, valuation integrity, and alignment between the GP, selling LPs, and new capital.

From an allocator perspective, secondaries affect:

• J-curve mitigation and cashflow timing,
• pricing advantage in dislocation,
• underlying asset risk (look-through), and
• governance/alignment quality in GP-led processes.

How allocators define secondaries risk drivers

Allocators segment exposure by:

• Deal type: LP-led vs GP-led (continuation vehicles, tenders, strips)
• Information advantage: access to company-level data vs blind pools
• Pricing discipline: discount/premium to NAV and conservative NAV underwriting
• Portfolio quality: underlying manager quality, asset maturity, concentration
• Structure risk: preferred equity, leverage, earn-outs, or complex waterfalls
• Alignment and conflicts: GP-led fairness, process integrity, and governance
• Liquidity timing: expected distributions, duration, and downside cases

Allocator framing:
“Is the return driven by disciplined entry pricing and asset underwriting—or by optimistic NAV assumptions and process risk in GP-led deals?”

Where secondaries sit in allocator portfolios

• used to reduce J-curve and improve distribution profiles
• common for allocators rebalancing private market exposure
• increasingly used as a cycle tool when primary markets are expensive or liquidity is constrained

How secondaries impact outcomes

• can deliver faster cashflows and reduced blind-pool risk vs primaries
• can underperform if NAV is overstated or exits are delayed
• can carry meaningful process risk in GP-led transactions if alignment is weak
• can be sensitive to leverage and financing costs in higher-rate environments

How allocators evaluate secondaries managers

Conviction increases when managers:

• show conservative NAV underwriting and realized outcomes vs entry assumptions
• demonstrate process discipline in GP-leds (conflict management, fairness)
• provide look-through transparency and concentration controls
• avoid leverage dependence as a primary return driver
• can show performance through multiple dislocation regimes

What slows allocator decision-making

• unclear differentiation between “secondaries” and “structured liquidity” marketing
• limited transparency into GP-led process integrity and valuation methodology
• heavy reliance on leverage or optimistic exit pacing
• weak reporting on look-through exposures and concentration

Common misconceptions

• “Secondaries are always lower risk” → underwriting and structure can add significant risk.
• “Discount to NAV guarantees returns” → NAV quality and exit timing matter.
• “GP-leds are always conflicted” → conflicts can be managed, but process discipline is critical.

Key allocator questions

• What is your NAV underwriting framework and how often does NAV prove wrong?
• How do you price GP-led deals and manage conflicts/alignment?
• How do you control concentration at the asset and manager level?
• What is your leverage posture and sensitivity to financing costs?
• What does the downside case look like if exits are delayed?