The Secondary Private Equity Market: Buying LP Stakes, Continuation Funds and GP-Led Transactions

The private equity secondary market has evolved from a niche liquidity mechanism into a substantial, sophisticated asset class in its own right. Annual transaction volumes reached approximately $112 billion globally in 2023 — the second-highest on record at the time — and have since grown to record levels, with the secondary market now attracting dedicated institutional managers, specialist fund-of-funds and, increasingly, sophisticated HNW investors. Understanding the distinctions between LP stake sales, GP-led secondaries and continuation vehicles is essential for anyone considering an allocation.

Capital is at risk. Private equity secondaries are illiquid investments suitable only for investors who can tolerate extended lock-up periods and potential total loss. This guide is for information only and does not constitute regulated investment advice.

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What Is the Secondary Market?

When an investor commits capital to a primary private equity fund, they typically face a ten-year lock-up with no ability to redeem. The secondary market exists to provide liquidity to these investors: a primary LP (limited partner) who needs to exit their position — for regulatory, portfolio management, or liquidity reasons — can sell their interest to a secondary buyer.

Secondary buyers acquire these interests at a price agreed between buyer and seller, typically expressed as a percentage of NAV (net asset value). In challenging market environments, discounts to NAV of 10–30% or wider are common. In buoyant conditions, some sought-after positions trade near or even at a premium to NAV.

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LP-Led Secondaries

The traditional form of secondary transaction involves an existing LP selling its interest in one or more PE funds. The buyer acquires:

• The LP's remaining unfunded capital commitment (not yet called by the GP)
• The LP's right to future distributions from the fund's portfolio

Why LPs sell:

• Portfolio rebalancing (private equity has appreciated, creating over-allocation)
• Regulatory changes (banks and insurers adjusting to capital requirements)
• Institutional mandate changes, wind-downs, or liquidity needs
• "Denominator effect": when public markets fall sharply, private equity's stable NAV creates apparent over-allocation

Pricing considerations. Secondary buyers conduct diligence on the underlying fund portfolio — reviewing individual company valuations, sector exposure and expected exit timing — before determining their bid price. The discount or premium to NAV reflects: perceived quality of the underlying portfolio, stage of fund life (earlier funds with more uncalled capital are often discounted more heavily), GP quality and strategy attractiveness, and overall market supply-demand dynamics.

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GP-Led Secondaries

Over the past decade, GP-led (general partner-led) secondary transactions have grown dramatically, representing roughly half of total secondary volume. In a GP-led process, the private equity firm itself initiates the secondary transaction, typically to:

• Provide liquidity to existing LPs who wish to exit after the fund's term approaches
• Continue holding assets that the GP believes have significant remaining value but that the original fund cannot hold without forcing a sale into an uncertain market
• Raise fresh capital to support the continued growth of portfolio companies

Continuation funds are the dominant GP-led structure. The GP transfers one, two or three of its best portfolio companies from an older fund into a new "continuation vehicle." Existing LPs in the old fund are offered a choice: roll their interest into the continuation fund (at the agreed pricing) or sell their interest to secondary buyers who provide the new capital.

This structure has attracted both enthusiasm and scrutiny. Proponents argue it is a rational solution to the illiquidity problem in primary PE and allows the GP to continue creating value in assets they know well. Critics point to conflicts of interest: the GP simultaneously represents the old fund (whose LPs may be selling at the agreed price) and the new continuation vehicle (which benefits from buying at the same price). GP-led transactions require careful governance and independent pricing processes to protect existing LPs.

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Direct Secondaries and Portfolio Transactions

In addition to fund stakes, the secondary market includes direct secondaries — purchases of portfolios of individual company stakes rather than fund LP interests — and structured transactions combining elements of both. Large portfolio transactions, often involving dozens of fund interests from a single seller, are typically only accessible to the largest secondary managers.

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Why Secondary PE Can Outperform Primary

Discount to NAV. Buying assets at a discount — even accounting for the fact that stated NAVs may lag actual values — provides a structural return enhancement relative to primary investing.

J-curve mitigation. Primary PE suffers the J-curve: early capital calls for management fees and the costs of building a portfolio, with distributions only coming years later. Secondary investors acquire portfolios of already-invested or partially realised assets, compressing or eliminating the J-curve.

Visibility on portfolio. Secondary buyers can review the actual underlying portfolio companies, rather than making a blind commitment. This allows more informed underwriting.

Shorter duration. Buying into an older fund — one that is five to seven years into its life — means distributions are expected in a shorter timeframe than a new primary commitment.

The Cambridge Associates Secondary PE Index has historically shown that secondary PE outperforms primary PE on an IRR basis over most vintages, though the outperformance varies considerably by manager quality and market conditions.

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The Secondaries Index and Performance Context

Measuring secondary PE performance is challenging because:

1. Most top-tier secondary funds do not publicly report performance
2. Definitions of "secondary" are inconsistent across data providers
3. GP-led and LP-led transactions have different risk/return profiles

The Preqin Secondary Buyout database and Cambridge Associates data both indicate that the median net IRR for secondary PE funds has historically been in the low-to-mid teens, with top-quartile managers delivering above 20% net IRR. Vintage year matters enormously — funds that deployed heavily during 2019–2021 (peak valuations) have experienced more challenging mark-to-market environments.

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Largest Secondary Managers

The secondary market is dominated by a small number of large, specialist managers:

• Ardian (France-based, largest secondary manager by AUM, over $40 billion in secondary assets)
• Lexington Partners (acquired by Franklin Templeton, large US-focused secondary manager)
• HarbourVest Partners (global, broad secondary programme including GP-led)
• Pantheon Ventures (listed and unlisted vehicles, strong UK and European presence; its listed trust, Pantheon International Plc, trades on the LSE as PIN)
• AlpInvest Partners (part of Carlyle Group, strong multi-strategy secondaries)
• Goldman Sachs Alternatives and Partners Group also operate large secondary programmes

For HNW and sophisticated investors, Pantheon Ventures' listed closed-ended vehicles (traded on the London Stock Exchange) offer accessible secondary PE exposure without institutional minimums.

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Risks

Overvaluation of the underlying. PE fund NAVs are typically reported quarterly and lag public market movements. A secondary buyer may purchase at a price that appears discounted to NAV but still overpays if the underlying companies are experiencing deteriorating fundamentals.

Liquidity. Despite the "secondary" label providing more liquidity than primary PE, secondary PE funds themselves are still illiquid closed-ended vehicles with lock-ups of five to eight years.

GP quality. The return on a secondary investment is still ultimately determined by the quality of the underlying PE managers and their ability to exit portfolio companies at attractive valuations.

Fee layers. Investors in a secondary fund pay fees to the secondary manager; the underlying primary fund also charges fees. Total fee burden can be material.

Market cycle timing. The secondary market itself is not immune to price cycles. During periods of market stress (2020, late 2022) discount levels widened; in buoyant conditions discounts narrow or disappear, reducing the structural return advantage.

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Access for HNW and Sophisticated Investors

• Listed secondary vehicles: Pantheon International (LSE: PIN), HarbourVest Global Private Equity (LSE: HVPE) and similar closed-ended investment companies offer exchange-traded access
• UCITS and semi-liquid structures: some managers offer quarterly-liquidity structures under ELTIF 2.0 or similar frameworks, with lower minimums (£25,000–£100,000) though these carry their own risk
• Direct fund commitments: institutional and large sophisticated investors can access dedicated secondary funds; minimums typically $5–25 million
• Co-investments via GP-led processes: some managers offer co-investment alongside their secondary funds at reduced or zero fees

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How Global Investments Can Help

The secondary private equity market offers genuine portfolio benefits — J-curve mitigation, discount opportunities and vintage diversification — but requires specialist manager selection and careful structuring. Our alternatives team can evaluate listed and unlisted secondary vehicles, assess the mix of LP-led and GP-led exposure, and help you size an allocation appropriately within your overall private markets programme. We can also advise on the listed vehicle discounts and the semi-liquid ELTIF structures now available in Europe.

Contact us to discuss secondary private equity as part of your alternatives allocation.