PE Secondaries

What is a PE secondaries group vs. a typical PE firm?

Primary PE firms raise money from LPs, invest in new companies, exit after a few years, and return capital.

Secondaries buy existing fund stakes or direct portfolios from investors.

What is an LP?

Limited Partner: acts as a silent investor, provides the bulk of financial capital; does not manage day-to-day operations

What is a GP?

General Partner: manages the fund, sources deals, makes investment choices

Why would an LP sell a fund stake?

Liquidity needs, regulatory or strategic shifts, portfolio management, rebalancing after the denominator effect.

What is the denominator effect?

Instance where the value of one portion of a portfolio decreases faster than others; happens when a drop in public stock and bond markets shrinks total portfolio value

Private equity value / Total assets — total assets drops, thus relative share of private equity goes up past your target rule.

Why is the denominator effect bad?

Regulatory/policy violations (like pension funds or endowments), liquidity crunch as investors are legally bound to fund existing commitments even if they are over-allocated, inability to invest in new promising commitment, etc.

What is the difference between an LP-led and a GP-led secondary?

LP-led: LP sells it stake in one or more funds to a secondary buyer; the GP and fund’s other LPs are largely unaffected. Buyer takes their place, and the transaction is priced as a % of the NAV

GP-led: GP initiates a transaction over assets it already manages; most commonly moving one or more portfolio companies out of an aging fund into a new continuation fund. Existing LPs can cash out at deal price or roll interest into new vehicle alongside fresh capital from secondary buyers.

Key difference: GP is both the buyer (continuation) and the seller (old fund) in GP-led deal, which can lead to a conflict of interest.

Why would a GP run a continuation vehicle?

To move top-performing portcos into CV, provide early liquidity to LPs, secure fresh capital for future growth, etc.