Hello, I’m Jonathan Braude and this is my podcast, PE in a Pod, where I interview personalities from the private capital world and their many lenders, advisers and service providers.
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Today’s edition comes to you from the SuperReturn Secondaries Europe conference in London, where a key focus of discussions has been the growth of General Partner-led secondaries, mainly through the use of continuation vehicles. For the moment, such CVs are mostly used by private equity buyout funds. But a growing minority are now initiated by private credit, infrastructure and even venture managers.
Over the past few years secondary sales of private capital holdings in general have grown rapidly. Last year alone, the investment bank Evercore estimates secondary market transactions hit $226 billion dollars, up 40% on the previous year. Of that total, traditional style limited partner-led deals hit $120 billion. GP-led deals, often involving single high-quality, trophy, assets or just a few assets from one of their funds, accounted for the other $106 billion.
Cari Lodge, founder and managing partner of generalist secondaries firm Aqualis Partners, says both LP-led and GP-led secondaries are expected to continue growing for years to come.
I think they’re going to divide into almost 2 separate markets. LP secondaries are the traditional secondaries that we’ve been doing – I’ve been doing - for 25-plus years, providing liquidity to individual LPs that want liquidity in the secondaries market. The continuation funds and the GP-led market are more like co-investments if they’re single asset and they’re more attuned to a regular buyout fund. And so we’re seeing a lot of professionals in the buyout space launching their own continuation fund vehicles. So I think that market will continue to evolve. But I think there’s tremendous growth in the secondary LP market. 01.32.
There’s certainly a lot of excitement about the growth in GP-led secondaries, which offer LPs in an existing fund a choice: they can cash out and use the money elsewhere or roll their investment over into the new CV.
In its 2026 private equity report consultancy Bain & Co. reports that a quarter of GPs have initiated or completed a CV recently and about 40% expect to explore a CV in the next year or two. What’s driving this growth – other than fear of missing out? Bain says more than half of GPs are using the technique to distribute funds to their LPs – although some are also using CVs to refinance assets or fund buy and build strategies. A majority of LPs are still taking the cash rather than roll, though that could change if the mergers and acquisitions and IPO markets pick up.
Many delegates to the London conference suggested the secondaries market is still under-funded, with Evercore estimating dry powder for both GP and LP-led deals at $215 billion dollars – so less than a year’s supply. However, new specialist funds focused on buying continuation vehicles are moving into the market, helping to reduce that constraint.
But while panellists were generally positive about the growth in secondaries and the market for GP-led deals in particular, some did question whether some of the excitement may be overdone.
Hamilton Lane’s Antony Anastasiadis for example pointed out that not all those who say they are contemplating a CV really get one done.
“There’s three parties to these transactions: the buyer, the GP and the LP…. The buyers have to be happy with the go forward returns, alignment, the price all of that; the GP has to be happy that they’re making a good sell and a good buy, and the LPs have to be happy that there’s a clear concise, third-party process, where they’ve been given enough information and time to make a decision. And what I don’t think we’ve talked about enough… is that at any time, any one of these three can kill the deal. …
The ones that get done, I’d say the vast majority of the time these things are working. The bad GP-led deals don’t really get done.
As Anastadiadis hinted there, not all LPs are happy with the election period, usually about 20 days, when they are expected to make the decision of whether to take the cash or roll. Although anecdotally some funds are now adapting their processes to move quickly, others such as pension funds, are finding it tougher
Chandini Jain, founder and CEO of financial AI company Auquan, chaired a panel on LP perspectives in the parallel SuperReturn Private Credit conference at the same London venue. She said poor communications between GPs and LPs were part of the problem and that GPs had to be aware that LPs don’t always have the same analytical resources available to sponsors.
That’s probably an operational infrastructure problem on the LP side. It means the easier thing to do is probably to say we’re going to take our distributions. From the GP’s point of view, the easier thing to do is to say you roll into the second vehicle. That creates kind of an incentive mismatch on both sides… The GPLP relationship at that point needs to feel like they are in a partnership. The GPs need to be aware that LPs have less access to resources and infrastructure than they do, so if they want the LP to participate in the continuation vehicle, there needs to better communications, erporting of information, better look through into the portfolio and help the LP make the decision rather than rushing them through the decision if you want them to come with you. 0437
Not everyone is sympathetic with problems of slower moving investors. Bruno Mathieu, Head of private equity at multi-family office Nevastar Finance, says he’s rolled over investments into several CVs and taken the cash on others.
If you follo a GP in an asset for the past 5 to 7 years, you should be able to make a decision in 20 days whether you want to reinvest or exit…. We’ve elected in some cases to do it and mostly we do, because we know the assets, we feel comfortable wth the next business plan and if the interests are completely aligned, i.e. the GP is reinvesting 100% of their carried interest. There are many other reasons to do it, but that’s one of the most important factors, which is the GP doesn’t get any cash from the first exit.
For Patrick Knechtli, head of Secondaries at Patria Global Private Markets Solutions, alignment with the GP on a continuation vehicle is similarly important. His approach changes, depending on whether he comes into the CV as a buyer or as an LP in the previous fund. But as part the wider Patria Group, he can build on the firm’s existing familiarity with the GP and its funds.
PK “We have a big primary platform focused on lower middle market managers, particularly in the buyout space in Europe and the US, and that gives us a big advantage when these GP-led opportunities come up. Because we’ve been invested in the fund, we know the GP well – and so the number one question for us is around the motivation for the GP: why are they doing the deal …?
And then going on from that it’s obviously about the quality of the underlying companies, but again we have an advantage through our primary commitment to the funds. We get visibility on that.
Then the next stage is really how is the GP behaving in the deal? What are they getting out of the transaction… and how much are they committing into the deal? That obviously tells you something about how excited they are as a buyer of the opportunity and being aligned with you coming into that deal?
And probably the best situation is if the GP is able to commit new capital from a new fund. That gives you the strongest signal that they are a buyer of that asset at the price that has been set.”
JB: Sometimes Patria is an LP in the fund that is selling the asset or assets into the new continuation vehicle. In that case he’ll be getting the same cash out or roll over choice as other investors the primary fund.
PK: When we’re in that situation, I think again the key focus is on the rationale for the deal: why are they choosing to do this transaction rather than sell into a more standard M&A process? And then have they actually maximised the price? As a primary investor in the fund, you’re holding on for the strategic premium that comes from the best trophy assets that are often the subject of these GP-led deals… and then pushing to make sure there’s an actual roll-over option… because that’s best defence for the GP themselves in terms of managing the conflict of interest. If the existing investor in the fund feels the price is too low, they have the opportunity to roll over and invest into the new transaction.
JB: So if the price is too low to sell, it’s a great place to buy?
PK:Yes.”
And so where does the secondaries industry go from here? Predictions for the next few years range anywhere from $300 billion to $700 billion or more. Michael Schad of Coller Capital recently suggested that private credit secondaries alone could double to reach $40 billion as soon as 2027.
But exactly how this all plays out, and whether GP-led or LP-led deals predominate in a particular year will depend in part whether more traditional exit routes, including mergers and acquisitions and IPOs on public markets prove more lucrative than continuation vehicles for GP’s trophy assets.
Antoine Drean, whose secondaries exchange Palico is set up to provide LPs with a trading platform for LP holdings, argues that GP-leds will grow more slowly than LP-leds.
I believe the GP-led side of the business is going to grow, but the LP-led side is going to grow much more quickly. Why? Because you hae so many new players in that space, so many new buyers and every LP at some point is going to be buying on the secondary market.
Drean set out more of his thinking in a separate edition of PE in a Pod, which you can find on my webpage, jonathabraude.substack.com. And as a panellist at the SuperReturn Secondaries conference, he stuck his neck out and predicted GP-leds could be as low as 20% of the entire market in five years.
Others, it is true have been more cautious. Here’ is Bruno Mathieu of Nevastar Finance again, rounding up PE in a Pod’s coverage of the debate for now..
BM: First I think GP-led is here to stay. So there will be…continuation vehicles and GP-led secondaries will continue to grow overall, because that’s a fairly good exit mechanism if you believe that the business is still going to create a lot of value in the next five years. So that I think is obviously here to stay. In the proportion…
Today’s proportions are probably an anomaly, but I think it would still be a large part of the market. LP-driven secondaries will probably dominate over time. But I cannot give a percentage, but maybe 60:40 or 70:30, but it is something that will continue to grow and will be here to stay.
JB: So it will be the people with whole portfolios to dispose of who will continue to do this?
BM: Yes, I think so. As more and more institutions are investing and have tails of assets, I think there are many reasons why at some point they will want to do secondaries, including funds of funds, and so that will still be the majority of secondaries that we find out there. But GP-led secondaries will be a significant portion of the secondaries market. Not the majority, but a significant part. More than 20(%).
