GP-Led Secondaries fill an important space in the Private Equity spectrum, that augments the expected investment return, risk and time horizon. For professional investors they are becoming a more widely used entry, continuation or liquidity facility, accounting for almost half of secondary transactions in 2021, double the volumes seen in 2017.
Professional investor access to Private Equity has evolved over the past 20 years. They have traversed the universe as traditional LP's in Funds, or Fund-of-Funds. Or as participants in existing or maturing funds, purchased at a discount from from other LP's looking for liquidity. And many of the larger institutions have established direct and/or co-investor teams, who source evaluate and invest in companies themselves.
GP-Led secondaries take a seat in the middle of this risk-return & investment-duration spectrum. They solve multiple issues for both GP's and LP's. And the transactions can be housed in different vehicles.
However, the motivation for entering into a GP-Led secondary varies from GP to LP. And along with the benefits come multiple risks and potential conflicts of interest that can be clouded in complexity, given the unique nature of each deal. Decisions on individual transactions requires in-depth due diligence, or the use of investment managers specialised in GP-leds.
