At F2H, we bring white-glove advisory to secondaries, capital raising, and M&A under $150m – delivering the sophistication of top-tier investment banking to small GPs, LPs, and companies. If you’re thinking of exploring or structuring a secondary transaction, contact us today to start the conversation.
Secondary transactions have evolved from simple LP stake sales into a diverse, complex market that now exceeds half a trillion dollars annually. What began as a liquidity outlet for limited partners has become a sophisticated ecosystem encompassing LP-led trades, GP-led restructurings, NAV-based financing, and direct secondaries at the company level.
Each structure serves a unique purpose—providing liquidity, extending ownership, or optimizing portfolio management. Understanding the distinctions among them is essential for any LP, GP, or company executive evaluating liquidity or capital strategies.
While this article focuses on the four primary types—LP-led, GP-led, NAV loan, and direct secondaries—it’s important to note that within each category there are numerous subtypes and hybrid variations tailored to specific fund or company needs.
An LP-led secondary occurs when a limited partner sells its interest in one or more funds on the secondary market. This type of transaction provides early liquidity for investors who prefer to redeploy capital or adjust their exposure before the fund’s maturity.
LP-led secondaries remain the most common form of secondary activity, accounting for roughly half of total global volume.
1. Single-Fund LP Sales
A straightforward sale of an LP’s position in one fund, typically involving direct negotiation with secondary buyers. These deals are efficient but require accurate fund NAV data and GP consent.
2. Portfolio Sales
A group of fund positions sold in bulk, often to diversify exposure and achieve scale in pricing. Portfolio transactions can range from a few funds to dozens, requiring careful coordination and data packaging.
3. Strip Sales
The LP sells a portion of commitments across multiple funds or strategies to maintain some exposure while realizing liquidity. This hybrid structure allows balance between cash realization and future upside.
LP-led sales provide clean liquidity and are usually completed within 60–120 days. However, sellers must carefully manage pricing dynamics, confidentiality, and GP communication to ensure smooth transfers and optimal valuation.
GP-led transactions are sponsor-initiated processes designed to provide liquidity to existing investors while creating continued ownership opportunities for the GP and certain LPs. These transactions have rapidly grown in volume as sponsors seek to hold onto high-performing assets longer.
A GP-led process allows for a “win-win” dynamic—liquidity for those who want it, and continued exposure for those who believe in the upside.
1. Continuation Funds
The most common GP-led structure. A continuation vehicle is created to acquire one or more portfolio companies from an existing fund. Current LPs can choose to sell or roll their interests, while new investors provide capital to fund the purchase and future growth.
2. Tender Offers
In a tender offer, new or existing investors are invited to purchase interests from current LPs in an existing fund at a negotiated price. These are often simpler to execute than full continuation fund structures but still require GP coordination and fairness validation.
3. Fund Restructurings and Recapitalizations
Comprehensive processes that may involve re-pricing, term extensions, or changes to carried interest and management fee terms. These are used when funds require additional time or capital to optimize portfolio value.
GP-leds offer tremendous flexibility but demand transparency and alignment among all stakeholders. Proper structuring and process management are crucial to avoid conflicts of interest and to ensure fairness opinions and governance integrity.
NAV-based loans are debt or hybrid instruments secured by the net asset value of a private equity fund’s underlying portfolio. These are not traditional secondaries per se but have emerged as a complementary liquidity tool within the same ecosystem.
For GPs, NAV financing provides non-dilutive capital that can fund follow-ons, distributions, or liquidity to LPs—without selling assets.
1. Fund-Level NAV Loans
A credit facility collateralized by a diversified fund portfolio. The fund retains ownership of assets, using the proceeds for liquidity or growth capital.
2. Asset-Level NAV Loans
A structure where financing is secured against one or more specific assets within the fund. This approach is more tailored and typically used when a GP seeks capital for a particular company or transaction.
3. Preferred Equity Financing
A hybrid between debt and equity, preferred equity provides downside protection to investors with capped upside, sitting structurally senior to common equity but junior to debt.
NAV-based solutions preserve ownership continuity and avoid forcing asset sales during suboptimal market conditions. However, they require sophisticated valuation, risk assessment, and lender alignment to prevent covenant constraints or long-term balance sheet issues.
Direct secondaries involve the sale or purchase of equity stakes in privately held companies, rather than fund interests. These can include employee liquidity programs, investor block sales, or early investor exits before an IPO or M&A event.
Direct secondaries have become increasingly common as companies stay private longer, creating demand for liquidity without a full exit.
1. Tender Offers and Structured Employee Liquidity Programs
Company-led or advisor-managed programs that allow employees and early investors to sell shares in a controlled, compliant manner. Advisors ensure fair pricing, governance alignment, and a clean cap table post-transaction.
2. Block Sales and Investor Transfers
Single or multi-investor stake transfers negotiated privately. These transactions are often driven by funds seeking to monetize minority positions in growth-stage companies.
3. Secondary Co-Investments and Recapitalizations
Investors purchase stakes in existing portfolio companies directly from current shareholders, often alongside growth equity infusions or structured recapitalizations.
Direct secondaries provide liquidity without requiring a sale of the business, preserving operational focus and valuation control. However, managing compliance, pricing, and shareholder relations requires professional oversight to prevent cap table fragmentation or valuation confusion.
The boundaries between these categories are increasingly fluid. Hybrid transactions—such as GP-led continuation funds combined with NAV financing or direct secondary elements—are becoming more common.
Advisors today must be able to blend structures creatively: combining liquidity, leverage, and strategic capital in ways that align with investor objectives, regulatory requirements, and long-term value creation.
Firms that specialize in only one transaction type often miss the synergies and optionality available through cross-structured approaches. A cross-functional advisor can identify and execute the optimal mix to achieve liquidity, growth, and governance balance.
The modern secondary market is no longer just a liquidity outlet—it is a strategic toolkit for fund managers, investors, and company leaders. Whether through LP-led trades, GP-led restructurings, NAV-based financing, or direct secondaries, each structure offers unique advantages when used deliberately.
Understanding these transaction types—and how they interact—is critical to unlocking value, managing portfolio risk, and preserving long-term flexibility.
Working with an experienced advisor like F2H Capital ensures that each process is structured, priced, and executed with institutional precision, aligning capital strategy with long-term outcomes.
At F2H, we bring white-glove advisory to secondaries, capital raising, and M&A under $150m – delivering the sophistication of top-tier investment banking to small GPs, LPs, and companies. If you’re thinking of exploring or structuring a secondary transaction, contact us today to start the conversation.
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