LP-leds vs. GP-leds
Would appreciate if someone could provide a better insight on LP-led advisory.
GP-leds seem to be all the buzz now with continuation vehicles as the hallmark advisory product, and LP-leds are rarely touched on in this forum presumably due to being very vanilla (?)
From an advisory standpoint, is it really as straightforward as selling the manager’s pedigree? Assume valuation work is very high level as it almost always involves interest sale in a fund holding multiple assets. Would love to hear about potential intricacies, challenges, and factors that make LP-advisory work interesting.
Bump
An LP-led secondary sale is decidedly more straightforward than a GP-led, but can still have its own quirks that make it difficult. The most common challenge is probably crafting a sale portfolio that checks as many of the sellers boxes as possible. Since secondary buyers are bidding at a discount to NAV, sellers will often outline a “maximum dollar loss” threshold that they don’t want to exceed. The issue is that the funds that trade at or near par on the secondary market are the best performing funds, which makes the seller reluctant to offload them because they would just be left with their worst assets. If they try to sell just their worst performing assets and keep their trophy funds, they will get abysmal pricing that essentially makes the sale process moot. A good LP-led team knows how to strike an appropriate balance that garners buyer interest while also meeting the seller’s liquidity needs. Modeling is typically done to justify secondary pricing estimates that the team provides and will be fund level as opposed to asset level.
This is a noob question but what is with all these secondary transactions? I understand CVs and think they make a lot of sense for all parties, but how frequently are GPs / LPs actually selling stakes?
I get there’s serious fund issues (i.e. tiger) or a one-off LP who needs liquidity, but generally speaking why is someone selling a PE fund stake? Work at an UMM fund and all our LPs are either big SWFs, pensions, etc and I would assume all of them are smart enough to understand they aren’t getting money out of a PE fund early without giving up a lot of the upside / would expect they manage investments appropriately to meet cash needs
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