Family Office Insights: Navigating the opportunities in the secondaries market

The rise of GP-led transactions

The growth of the secondaries market has been fueled by GP-led transactions since 2021 – and they now account for  ~50% of global secondaries transaction volume. Although the history of GP-leds dates back more than 10 years, they rose to prominence following the outbreak of COVID-19 at a time when broader exit options narrowed. These transactions provided a tool for sponsors to generate liquidity for their LPs, while holding onto select, high-quality assets for longer through continuation vehicles (CV), allowing them to create additional value in the next stage of growth.

The traditional LP secondaries market is growing, as well. However, it is a very mature market with a 25-plus-year history and, as such, it is subject to increasing commoditization and competition. Vast diversification and the plain-vanilla nature of LP secondaries, which involve the purchase of stakes in existing PE fund portfolios often containing hundreds of underlying company exposures, call for the use of AI tools in underwriting and execution of the transactions. They also attract the attention of evergreen 40-Act/Semi-Liquid funds that have a lower cost of capital, which puts pressure on target returns.

On the contrary, GP-led transactions are a more concentrated, alpha-driven investment strategy. They are still in their early days and we believe they have enormous market potential, as in many cases they are replacing secondary buyouts as an exit route. In addition, the complex nature of the transactions creates attractive dynamics for specialist buyers with appropriate skills to underwrite, structure and execute on the opportunities.

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