Secondaries Explained

Reference · Deal types & structures

LP-led secondary

A sale of a limited partner's stake in a fund to another investor. The fund itself is unaffected; only the identity of the LP changes.

Worked example

A worked example from the buyer's side (illustrative figures):

  1. A secondary buyer purchases an LP stake with a current NAV of $10 million for $8.5 million — an 85% price-to-NAV.
  2. Over the following four years, the fund's remaining portfolio matures and distributes a total of $12 million back to whoever holds that LP interest.
  3. On an $8.5 million entry, receiving $12 million back over roughly four years works out to an internal rate of return in the high single digits to low double digits — a return the buyer earned purely from buying an existing, already-de-risked portfolio at a discount, without ever making a primary fund commitment.
  4. This is the basic economic logic behind every dedicated LP-secondaries fund in the buyer & fund directory: discount-to-NAV entry plus a shorter, more visible path to distributions than a primary commitment made from scratch.

Where this trips people up

The persistent misconception is that an LP selling signals distress or a bad fund. Most LP-led sales are portfolio management: a plan is over its private-markets target, has changed strategy, or wants to reduce the number of manager relationships it administers. Pricing follows the underlying assets and the fund's remaining life, not the seller's motive.

Frequently asked

Does the buyer take on future capital calls?

Yes. Buying an LP stake means inheriting the unfunded commitment as well as the existing value, which is a major part of how these positions are priced — a stake that is largely unfunded is a very different asset from a fully drawn one.

Why do LP stakes usually trade at a discount to NAV?

Because the buyer takes illiquidity, uncertainty about reported marks, and the cost of diligence, and expects a return for it. Discounts narrow when confidence in the marks is high and competition for the asset is strong.

See the full glossary entry, or browseevery term.