Private Equity GP-Led Secondaries

Why invest in Private Equity GP-Led Secondaries

• Enhanced Liquidity: Investors can gain liquidity earlier than the typical private equity fund lifecycle.
• Portfolio Diversification: Access to diversified portfolios and mature assets with reduced risk compared to primary investments.
• Manager Selection: Opportunity to invest alongside high-quality General Partners (GPs) with a strong track record.
• Information Advantage: Better transparency and access to detailed performance data and asset information.
• Potential for Higher Returns: Lower entry prices and mature assets can lead to attractive risk-adjusted returns.
• Reduced J-Curve Effect: Immediate exposure to seasoned assets mitigates the initial negative returns often seen in primary investments.

What are the main risks of Private Equity GP-Led Secondaries

• Valuation Risk: Potential overvaluation of assets by GPs looking to exit.
• Concentration Risk: Limited diversification if the secondary deal involves a few large assets or a single fund.
• Liquidity Risk: Despite improved liquidity compared to primary investments, secondaries can still be relatively illiquid.
• Manager Risk: Dependence on the GP’s ability to manage and exit the assets successfully.
• Conflicts of Interest: GPs may have conflicting incentives when restructuring or exiting assets

What characterizes Private Equity GP-Led Secondaries?

Industry/Sector: Varied: GP Led Secondaries are not confined to a single industry or sector. They often span a wide range of industries depending on the portfolio companies of the GP initiating the secondary transaction.

ESG: ESG considerations are becoming more prominent in GP Led Secondaries. Investors and fund managers are increasingly incorporating ESG criteria into their investment processes, reflecting a growing emphasis on sustainability and responsible investing.

Instruments: Equity, Co-Investments, and Fund Interests: The primary instruments used in GP Led Secondaries include direct equity stakes in companies, co-investment opportunities alongside the GP, and interests in the underlying funds. These instruments are structured to provide liquidity and alignment of interests between the GP and investors.

Target Company Size: Middle Market to Large Cap: GP Led Secondaries typically target middle-market to large-cap companies. These are firms with substantial growth potential and established operations, making them attractive for secondary transactions.

Return Profile: GP Led transactions often involve mature companies with proven track records, providing a balance of risk and reward. The focus is on achieving liquidity while continuing to capture upside potential.

Geography: Global - GP Led Secondaries have a global reach, encompassing opportunities in North America, Europe, Asia, and other regions. This geographical diversification allows investors to access a wide range of markets and economic environments.

Question 1. Where do you see an opportunity in the Private Equity secondary market and how do you approach this opportunity?

PineBridge

Liquidity remains a key concern for investors as M&A volumes have declined since 2021 due to headwinds from rising interest rates, inflation, and geopolitical uncertainty. The secondary market has stepped in as a crucial liquidity provider—both for GPs through continuation vehicles and for LPs via portfolio sales. These trends contributed to record secondary transaction volumes in 2024, despite subdued traditional exit activity.
One key opportunity lies in LPs seeking liquidity on more recent fund vintages, which may offer greater NAV accretion potential. This enables secondary investors to construct portfolios with a balanced mix of vintages and cash flow profiles. However, while supply dynamics favour secondaries, elevated dry powder levels mean selectivity is essential.
Ultimately, nearly all market segments and strategies seem to be facing similar challenges in the current environment. It is tempting to respond to an expanding opportunity set with less measured deployment, and more opportunistic GP and asset selection. A systematic approach to secondary investing remains advisable.

Portfolio Advisors

The Private Equity secondary market has grown at an 18% CAGR over the past 12 years, with LP-led transactions maintaining steady 12% growth. This expansion is driven by LP liquidity needs and portfolio management demands. Despite rising dry powder, the market remains undercapitalized, with capital levels below 2x annual volume.

Our approach focuses on three key areas: (1) Prioritizing strong GP relationships to gain preferred access and insights, (2) Leveraging our broad platform’s capabilities to execute differentiated secondary transactions, and (3) Targeting LMM and MM segments with two-thirds of the market being sub-$250 million transactions. These areas offer less competition and more attractive risk-adjusted returns.

Question 2: What are the conditions that now make it an attractive time to deploy capital in the GP-led market?

Portfolio Advisors

The GP-led market is increasingly attractive due to several key factors. First, transactions are now dominated by top-performing GPs focused on their highest-quality assets. Second, strong alignment is evident through GP commitments and cross-fund participation.

Additionally, LPs seeking liquidity continue to drive a steady supply of opportunities, while the GP-led market remains undercapitalized, reducing competition. These conditions create an optimal environment for selective deployment into high-quality deals.

PineBridge

GP-led transactions have grown significantly since the late 2000s, accounting for approximately 44% of total secondary volumes in 2024. Over the past 5-7 years, their focus has shifted from tail-end fund clean-ups to continuation vehicles for high-performing assets requiring additional capital. This shift allows secondary investors to target specific, high-quality assets while gaining exposure to top-tier GPs that may not otherwise be accessible.
Current market conditions create a mixed opportunity set. The slowdown in traditional exit routes may increase the supply of attractive GP-led deals, while strong capital inflows make the space more competitive. Notably, as asset quality in these transactions has improved, LPs are less willing to accept significant discounts, often resulting in pricing close to par. This shifts the source of value creation from acquiring assets at a discount to driving operational value creation.
Rather than timing GP-led investments based on short-term conditions, it seems advisable to apply a consistent analytical framework. Key attributes of an attractive GP-led transaction can include strong governance rights; clear alignment of interest between the GP, management, and investors; a solid valuation basis; and non-public exit paths.
In today’s volatile environment, GP-led deals focused on non-cyclical businesses may be particularly compelling.

Question 3: Which segment of the secondary market do you see as the most competitive? The most underserved?

PineBridge

As the secondary market matures, managers are expanding their scope in search of differentiated opportunities, making it harder to identify truly underserved niches. Larger managers, which have absorbed much of the capital raised in recent years, typically focus on sizeable LP portfolios and continuation vehicles. As a result, large-scale transactions in these segments are likely to remain competitive.
Conversely, the venture and growth equity secondary space appears relatively underserved. Limited liquidity and uncertain realization timelines have historically discouraged secondary buyers, but this dynamic may shift as existing investors seek to rebalance their exposure. That said, underwriting these assets requires a disciplined approach, given the inherent unpredictability of future growth.
Smaller sized, off-market, bespoke transactions that fall below the radar of larger funds can exhibit greater entry discounts due to reduced competition, and more readily executable value creation opportunities, as underlying companies are often in their first round of institutional ownership. 
Overall, strategic elements such as GP relationships, transaction sourcing approach, and underwriting discipline may deserve equal consideration as the appropriate selection of the right market segment in the current environment.

Portfolio Advisors

The most competitive segment includes large LP-led portfolios exceeding $250 million and LP-led transactions involving large-cap funds, where access to differentiated insights is limited. These deals attract significant competition from well-capitalized buyers.

The most underserved segment includes LP-led portfolios below $100 million, transactions involving Funds of Funds (FoFs) and secondary fund LP-leds, as well as lower middle-market GP-led deals. These segments often present inefficiencies and pricing advantages due to a lack of dedicated capital.