istinguished by who initiates the transaction.
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First, let’s define the roles. Limited partners, or LP’s, are investors in private funds. Common examples of LP’s include endowments, sovereign wealth funds, and high net worth individuals.
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General partners, or GPs, manage those funds using LP capital to execute their investment strategy. Typically, LPs commit capital to a fund for up to 10 years. If they need to access their investment capital early, they can sell it on the secondary market to a buyer.
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Like Collar EQT, they may choose to sell the investment in a single fund or a portfolio of multiple fund positions with many underlying assets.
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LP-led transactions have become increasingly common as sophisticated investors leverage secondaries funds to take a more active approach in managing their private market portfolios.
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As a result, annual LP-led transaction volumes have grown significantly, reaching approximately $120 billion, nearly 4 times what they were a decade ago.
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In contrast, GP-led transactions are initiated by the GP. There are several reasons a manager might do this, but it’s often motivated by the GPs interest in retaining exposure to high performing assets with significant remaining upside.
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In this example, the GP moves the asset into a new investment vehicle known as a continuation fund, which typically involves A secondary’s manager like Collar EQT to help structure and lead the transaction.
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At this moment, investors in the primary fund have a choice. They can choose to redeem their existing investment or roll it over to the continuation fund.
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GP-led transactions have also grown increasingly popular, now making up nearly 50% of all secondary transactions, up from 20% a decade ago.
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For secondaries investors, LP-led portfolios offer diversification and stable cash flows, while GP-led transactions provide concentrated exposure to high quality assets managed by experienced GPS.
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A well balanced portfolio with both LP and GP-led deals can give investors diversified access to private assets with an attractive risk return profile.
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Investors seeking exposure to the secondary’s market should work with experienced managers to find the right mix of LP and GP-led investments that align with their risk tolerance and return goals.
