Market Insight
September 05, 2024
Expanding the Toolkit: How GP-Led Transactions Can Enhance Secondary Strategies
Innovation has helped to destigmatize GP-led transactions, establishing the practice as a mainstream liquidity management tool for GPs today. In this paper, we explore how GP-led deals can offer concentrated exposure to high-quality managers and assets, compounding the overall advantages of secondary strategies.
Key Takeaways
- GP-led deals—those through which general partners negotiate asset sales directly with secondary buyers—have been the fastest growing segment of the private equity secondary market since 2018, accounting for almost half of all secondaries transactions in 2022 and 2023.¹ In our view, these transactions have now become firmly established as a mainstream liquidity management tool for GPs.
- ·The rising popularity of GP-led deals is a result of continued innovation and a slowdown in traditional exit avenues like initial public offerings (IPO) and mergers & acquisitions (M&A), especially after the Federal Reserve started tightening monetary policy in March 2022. That said, we believe that GP-led deal volume will remain strong even when these traditional exit avenues normalize, as these transactions have become entrenched as a key component of the private markets ecosystem.
- GP-led transactions, in our view, have the potential to provide mutual benefits for both limited partners and financial sponsors alike, including access to early liquidity, and the ability to remain invested in high-performing “trophy assets” for longer than would otherwise be feasible.
- GP-led transactions can add higher concentration compared to LP-led transactions, which can provide focused exposure to premium assets with attractive long-term growth potential. Deployed alongside LP-led deals, GP-led transactions can also enhance overall diversification in secondary portfolios.
- In our view, the potential benefits brought on by exposure to GP-led transactions compound the overall advantages associated with secondaries strategies, namely vintage and manager diversification, enhanced due diligence, reduced operational and managerial complexity, and the potential for more consistent capital distributions and returns.
- Like the broader secondaries market, we believe the potential for investment success in GP-led deals is based on: a) an investment manager’s relationships with general partners; b) the scale and flexibility of the investment platform to provide innovative capital solutions and lead transactions—e.g., to be a price setter instead of a price taker; and perhaps most importantly c) the ability to conduct deep company-level due diligence, leveraging information, resources and expertise from a direct investor’s tool kit.
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