- GP-led secondaries, explained
- What is a GP-led secondary?
- How GP-led secondaries work
- Types of GP-led secondaries
- Continuation funds
- Strip sales
- Tender offers
- How GP-led secondaries differ from LP-led secondaries
- Why fund managers use GP-led secondaries
- Provide liquidity options for LPs
- Extend the holding period for select assets
- Executing a GP-led secondary transaction
- How to streamline secondary transaction operations
- Frequently asked questions about GP-led secondaries
- Are continuation funds considered GP-led secondaries?
- Do GP-led secondaries and evergreen funds work together?
- How do GPs manage conflicts of interest during secondary transactions?
- How do GP-led secondaries impact fund performance metrics?
- Do GP-led secondaries require LP advisory committee approval?
- How does a GP-led secondary transaction impact a fund's net asset value?
What is a GP-led secondary?
A general partner (GP)-led secondary is a transaction initiated by a fund manager to provide existing limited partners (LP) with the option to cash out of their investment early, while allowing the GP to retain control of the underlying assets. This means the fund manager creates a new way for investors to get their money back without selling an actual portfolio company to an outside buyer.
These GP-led transactions transform traditional fund operations by creating a liquidity event outside of a standard merger, acquisition, or initial public offering (IPO). For venture fund LPs, DPI remains elusive: Half of all funds from the 2018 vintage have still not distributed any capital back to their LPs, and for more recent vintages, distributions are even harder to find. This waiting period could stretch on for an extended duration, locking up capital that investors might need elsewhere.
The introduction of GP-initiated secondary transactions changed this dynamic entirely. Previously, the industry viewed these transactions as a rescue mechanism for underperforming private equity funds. Today, they serve as both a portfolio management tool and, in many cases, a practical response to a market where traditional exits may not deliver acceptable outcomes for existing investors. By orchestrating these deals, fund managers create a structured liquidity option when traditional exit routes are limited or unattractive. They create a structured environment where investors can choose to exit or remain invested based on their individual financial goals.
How GP-led secondaries work
While LPs can sometimes seek early liquidity on their own, a GP-driven process looks entirely different behind the scenes.
To fully grasp how these deals work, you need to understand the key players involved. The primary participants include the fund manager, the original investors, and the new buyers.
General partner (GP): The fund manager initiating the transaction to hold onto assets longer.
Limited partner (LP): The existing investors choosing whether to sell their stake or stay invested.
Secondary buyer: The new investor providing the capital to buy out the exiting LPs.
Fund managers use different legal and financial mechanisms to execute these transactions. The chosen structure dictates the administrative workflow required to close the deal successfully.
Types of GP-led secondaries
Understanding each structure is essential for any fund finance professional navigating the secondary market. The ideal format relies on the concentration of the assets and the liquidity needs of your LPs. Each structure presents unique benefits and operational requirements for the fund's back office. You can tailor the transaction to fit the specific situation of your portfolio.
Here are the most common structures used in the industry:
Continuation funds
Continuation funds serve as the most common structure for these transactions. A continuation fund is a newly formed entity, often a special purpose vehicle (SPV), created specifically to purchase assets from an older fund. This means you transfer assets from your original fund into this new vehicle, which is backed by new secondary investors.
Continuation vehicles are often used when GPs believe assets need more time and current market conditions do not support an exit at an attractive price. Existing LPs are given the choice to roll their interest into the new vehicle or take a cash payout funded by new secondary buyers. This provides flexibility for investors who want to leave and those who want to stay.
Setting up a continuation fund requires drafting new legal agreements establishing clear terms for the new investors and the rolling investors.
Strip sales
A strip sale is a common secondary transaction where a GP sells a portion of a private equity portfolio to a secondary buyer to generate partial liquidity. This means you slice off a piece of your fund's holdings, while the original fund retains the remaining portion.
This structure allows you to generate partial liquidity for your investors. It also helps you de-risk a highly concentrated portfolio without entirely giving up future upside.
You can use a strip sale to adjust your fund-level asset allocation when you want to return some capital but still believe the assets will grow. It strikes a balance between realizing gains and maintaining exposure.
This approach is particularly useful when a single company becomes too large a portion of your overall fund. You can sell a strip to rebalance your portfolio.
Tender offers
A tender offer is a process where you arrange for an external buyer to purchase interests directly from your existing LPs at a set price. This means outside secondary investors step in to buy out the original investors without moving the underlying assets. This structure provides a straightforward mechanism for investors to exit their positions without requiring the creation of a new fund entity.
Tender offers require less administrative overhead than forming a new vehicle. You simply help match willing sellers with a willing buyer. Unlike continuation funds, the underlying assets do not change entities during this process. The transaction happens entirely at the investor interest level. This is a highly efficient way to offer liquidity without moving assets around.
How GP-led secondaries differ from LP-led secondaries
An LP-led transaction occurs when an individual investor independently sells their specific fund interest to a secondary buyer. This means one person decides to leave the fund and finds a replacement for their specific spot. LP-led deals primarily involve updating the cap table and transferring ownership for an individual investor. While still requiring legal and administrative oversight, the scope of an LP-led deal is significantly narrower.
In contrast, GP-led transactions are orchestrated by the fund manager across the entire fund or for specific assets. This fundamental difference means these approaches require vastly different back-office workflows.
GP-led deals require the fund chief financial officer and administrator to manage a complex, fund-wide election process involving intricate investment structures. This requires a resilient operational infrastructure to ensure accuracy and maintain compliance throughout the entire process.
The finance team must manage investor relations by communicating with every investor, utilizing software to track investor commitments and individual decisions, and coordinating the movement of capital across various entities.
Feature | GP-led secondaries | LP-led secondaries |
Initiator | The fund manager | An individual investor |
Primary goal | Extend asset hold periods and offer fund-wide liquidity | Generate immediate cash for an individual investor |
Scope of transaction | Encompasses the entire fund or a specific group of assets | Limited to an investor's specific stake in the fund |
Administrative burden | High complexity requiring fund-wide coordination and new legal entities | Lower complexity focused on transferring individual ownership |
Why fund managers use GP-led secondaries
Managers only initiate GP-led deals for highly strategic reasons, as they carry a heavy administrative burden. In the 12 months from July 2024 through June 2025, total venture capital (VC) secondary transaction value reached an estimated $61.1 billion, surpassing the combined value of all VC-backed IPOs over the same period ($58.8 billion). Fund managers use these secondary transactions for proactive portfolio management rather than waiting for unpredictable public markets or acquisition activity.
GPs pursue these deals for several strategic reasons including maximizing value, offering choices, and securing capital. The primary motivations typically fall into distinct categories that benefit the management team and the LPs alike.
Maximizing asset value: Maximizing asset value: Giving select assets more time when a near-term sale would not reflect the GP’s view of long-term value.
Providing optional liquidity: Giving LPs who need to rebalance their portfolios a chance to cash out.
Securing follow-on capital: Obtaining fresh funding to support the continued growth of the portfolio companies through a follow-on investment.
This approach can give managers more flexibility over investment timelines, particularly when they are navigating delayed exits or a mismatch between current bids and long-term value expectations. This may allow GPs to reset the timeline on their primary investments and secure additional dry powder for follow-on investments, investment diversification, and other changes to allocations. By leveraging these transactions, you maintain control over your best investments while keeping your investors satisfied by offering them a clear path to liquidity.
Provide liquidity options for LPs
Offering a liquidity option helps GPs build trust and strengthen relationships with their LPs. This flexibility is especially valuable when those investors need to rebalance their own portfolios or realize returns on their initial investments.
By providing a clear path to cash without forcing LPs to sell on their own, fund managers demonstrate a commitment to their investors' financial needs. This can make it easier for the manager to raise capital for future funds. When investors know a manager is proactive about returning capital, they are often more willing to commit to new ventures. This creates a positive cycle of investment and return.
Extend the holding period for select assets
GPs often want to hold onto select assets they believe need more time to realize value. These are typically assets the GP believes are not yet ready for exit given current market conditions or company-specific timing. Managers may prefer holding these companies rather than selling them into a market that does not support the price they paid, the value they have underwritten, or the upside they believe remains. To achieve this extension, GPs use specific financial vehicles designed to house these assets for a longer duration.
This allows the manager to continue guiding the company's growth strategy and gives the manager a chance to capture more upside before an eventual IPO or acquisition.
Executing a GP-led secondary transaction
Executing a GP-led secondary is an administrative heavy lift that falls squarely on the shoulders of the fund’s chief financial officer, requiring significant support for back and middle office operations. This process requires meticulous data management, compliance tracking, and accounting precision to ensure a smooth transition.
Without the right infrastructure, these transactions can quickly overwhelm a finance team. The sheer volume of documentation and communication required during due diligence is prone to human error if managed manually. Finance teams must coordinate with legal counsel, auditors, and investors simultaneously. The specific challenges include:
Managing the election process: Tracking which LPs choose to roll their commitments vs. those who choose to sell creates a massive data management hurdle. Distributing complex legal documents securely to all parties adds another layer of difficulty. The Carta LP Portal solves this by providing a single, secure login for investors to review performance metrics, understand their options, and sign subscription documents without messy email threads.
Securing independent valuations: To avoid conflicts of interest and ensure fairness for selling investors, GPs must obtain a rigorous, independent portfolio valuation for the assets being transferred. Carta's Portfolio Valuations team leverages live market data and proprietary software to produce the compliance-grade rigor that independent auditors and secondary buyers demand.
Structuring new entities: Structuring the new continuation fund requires running Know Your Customer (KYC) checks on new secondary buyers and managing the event-based general ledger as assets move between entities. Know Your Customer checks are mandatory processes to verify the identity of clients and prevent illegal activities. Carta SPV and Fund Formations handles the legwork of setting up legal entities and closing investors efficiently, keeping the fund compliant across jurisdictions.
How to streamline secondary transaction operations
Managing GP-led secondaries on spreadsheets or disconnected legacy systems introduces unacceptable risk and delays. The sheer volume of data and the need for absolute accuracy make manual processes obsolete.
Modern fund administrators require integrated fund administration software that unifies data to handle the complexities of the secondary market. By centralizing fund data, finance professionals can automate routine tasks and gain real-time visibility into their operations. This technological shift enables fund CFOs to elevate their role from back-office administrators to strategic business partners capable of accurate fund forecasting. They can surface insights, make recommendations, and drive fund performance with confidence.
Firms that specialize in secondary investments rely on Carta's integrated private equity (PE) software to scale their strategies and maintain a single source of truth. For example, VCFA Group, a PE firm that specializes in buying secondary interests in VC and growth equity funds, uses Carta to manage its complex portfolio.
As an ERP for private capital, Carta gives fund finance teams a shared place to manage their fund financials. With Carta, you can drill down into every ledger entry to ensure unmatched accuracy during the transition.
A streamlined operation ultimately makes the fund manager more competitive in the market. They can execute deals faster and provide a better experience for their investors.
Request a demo to see how Carta's integrated platform for PE firms can streamline your next transaction.
Frequently asked questions about GP-led secondaries
Navigating the complexities of the PE secondaries market often brings up common questions for fund managers and investors alike. Understanding the nuances of these transactions is essential for making informed investment decisions.
Here are clear answers to some of the most frequent inquiries regarding these transactions.
Are continuation funds considered GP-led secondaries?
Continuation funds are indeed the most common type of GP-led secondary transaction. They are used when a manager moves assets into a newly formed vehicle to extend the investment horizon and provide optionality for investors.
Do GP-led secondaries and evergreen funds work together?
While evergreen funds lack fixed end dates, managers may still use GP-led secondaries to manage liquidity around specific assets. Unlike a GP-led secondary, which is usually a discrete transaction tied to a fund or asset set, evergreen funds are designed around ongoing capital activity and periodic liquidity mechanics, which creates a different investor experience and a different kind of operational complexity.
How do GPs manage conflicts of interest during secondary transactions?
Managers mitigate conflicts of interest by using independent valuation providers to set objective asset prices. They also seek formal approval from the LP advisory committee, as outlined in the limited partnership agreement, to ensure fairness and transparency for all investors.
How do GP-led secondaries impact fund performance metrics?
Cashing out investors locks in the original fund distributions and internal rate of return (IRR). Meanwhile, rolling investors will see their performance tracked under the new continuation vehicle's metrics.
Do GP-led secondaries require LP advisory committee approval?
Because the GP is on each side of the transaction, advisory committee approval is almost universally required. This approval waives conflict-of-interest clauses found in the original fund's limited partnership agreement.
How does a GP-led secondary transaction impact a fund's net asset value?
In a GP-led secondary, the existing fund's assets are effectively repriced at the transaction value, which becomes the new cost basis in the continuation vehicle. LPs who elect liquidity have their net asset value (NAV) realized at the deal price, crystallizing any gains or losses at that point. For those who roll over, their position is marked to the transaction price rather than the original cost basis, resetting the NAV clock. Because transaction prices typically exceed the old fund's carrying value, the legacy fund usually records a final mark-up, boosting its terminal TVPI and DPI. The continuation vehicle then begins building its own NAV from that higher starting point, with a fresh performance history.
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