Q&A: PE Secondaries Principal

Hi there,

I wanted to host a Q&A to see if I can be helpful to anyone. A bit about me:

-Non-Target Undergrad (no MBA)

-4 years I.B.

-5 years in PE secondaries, promoted 1 year ago to Principal

-Active in all types of deals (Vanilla LP, tail-end, Late Primary, GP-led, Credit, Pref. Equity, Real Assets, Directs & Control, Distressed)

Hopefully I can be helpful.

Comments (174)

  • Analyst 2 in IB - Gen
Sep 24, 2021 - 6:28pm

Would be interested in your thoughts on the best secondaries shops, from a perspective of returns, comp, culture, etc on both the LP side and the GP-led side

  • Principal in PE - Other
Sep 25, 2021 - 5:09pm

Hi there!

Thanks for your questions.

Naturally this is quite subjective but I'll provide you with my opinions, based on my personal interactions with the groups and some data points I've found over the years.

From a cultural perspective, I think Whitehorse is building a very respectable shop. Their staff are treated well and generally the people working there are quite pleasant and seem energized about the work they do. From a return perspective I think the actual implementation of their strategy leaves something to be desired, but time will tell.

From a purely compensation perspective, Goldman Sachs and Blackstone both pay exceptionally well. Where as the likes of HarbourVest and Hamilton Lane certainly do not.

Groups that I think are doing something really interesting and have exceptional returns:

1. Neuberger Berman - really smart group of people. Focus is on GP led transactions. Returns have been extremely strong. Seems to avoid a lot of the over-saturated GP-leds at the top end of the market.

2. Sweetwater - focus is on single asset direct deals. Returns have also been really strong (25%+ and 3x+ Multiples). Strategy is a bit more high-octane than 'standard' secondaries.

3. Overbay - More of an index strategy but returns seem to be very strong. Worked with a few of their principals and they're sharp.

4. Knightsbridge - Really smart VC buyer, really understands the market.

5. Multiplicity - More of a HF but do really interesting deals and are incredibly smart.

6. Banner Ridge - Similar to Multiplicity but focus is just on distressed.

7. Late addition - I forgot to mention that Hollyport is killing it!

Mar 30, 2022 - 4:27pm
RIBS, what's your opinion? Comment below:

Hi! Thank you for taking the time to answer questions. I was wondering if you would be able to expand on Overbay Capital? Realizing there isn't a lot of discussion on WSO regarding this firm and wanted to see if you could expand on what you mean by 'index strategy' - Thanks!

May 12, 2022 - 8:36pm
Monkehhh, what's your opinion? Comment below:

Speaking to one of the smaller firms on the list and would be grateful for your thoughts. Can't find a way to DM you - do you know how best I could reach out (or if it's not too much to ask, could I trouble you to DM me)? 

Thanks a lot for the thread - this is probably the best discussion out there on the sector. 

  • Incoming Analyst in PE - Other
May 13, 2022 - 12:24am

Any thought on why HL and Harbourvest don't pay well and any idea about their associate/senior associate/vp comp? Thank you

  • NA in AM - FI
Sep 24, 2021 - 7:02pm

Questions:
1. Since secondaries are not talked about as much on this forum can you go into more detail about those deal types you mentioned? Specifically, what the differences are (e.g. "Vanilla LP" vs. "GP Led" vs. "tail end").
2. Please comment on the differences in the analysis between secondaries and regular PE/DL.

3. Typical Junior comp at a place like yours?

Most Helpful
  • Principal in PE - Other
Sep 25, 2021 - 5:36pm

Hi there!

Thanks for your questions.

Question 1:

Below is how I try and segment the market. Various groups will focus on maybe 1-3 of these deal-types, while a few of the mega-funds (Blackstone and Goldman) will do them all (to varying degrees of success!)

1. Vanilla LP: You are buying single/multiple LP stakes in a fund(s). Transactions are typically between the buyer (PE secondaries firm) and the seller (holder of the LP stake) - the GP is generally not involved in the transfer. This is 'traditional' secondaries investing and relatively 'passive'.

2. GP-led investing: This is a catch-all phrase but really captures a variety of 'liquidity mechanisms' which have been around for years. The focus is for the buyer (PE secondaries firm) to engage directly with the GP to craft a liquidity solution which meets both the manager's needs and that of their LPs. When COVID-19 hit, traditional 'vanilla' LP stakes became impossible to buy due to the valuation lag. As such, a variety of firms started concentrating solely on GP-led deals so they could have better access to information. Below are a few 'sub-strategies' for GP-led investing:

2a. Continuation Fund: The GP's fund is near the end of its life and the GP needs more 'runway' to manage the assets out. The GP either lifts out single assets (the 'carve-out') (or all of the assets) into a 'Continuation Fund' with a longer term. Typically existing LPs are given the option to cash out (often at or around a price of par) or can go into the new vehicle without charge. Often GPs economics are reset and carry may or may not be crystallized. A variety of firms now specialize in carving out prized single assets from even newer funds so GPs can gain more time and $$ through a continuation vehicle. The jury is out on the ethical parameters of some of these younger funds doing this. Firms like Timber Bay have built concentrated single-asset secondary funds comprised of ~10-12 deals, each with a single company.

2b. Tender: Similar to the Continuation Fund but more passive in nature. LPs are given the option by the GP to sell their stake to a replacement buyer or continue in the fund status-quo. The term may be moderately extended, or not at all. This is less labor intensive and invasive than the Continuation Fund. Often the secondary buyer will provide a 'staple' (i.e. primary commitment to the GPs newer fund) to entice the GP to go ahead with the Tender in the first place. Once again, jury is out on the ethics of this but it is more passive in nature than the continuation fund.
 

2c. Fund Restructuring: A combination of a Tender, Staple, and Continuation Fund. The focus is on there being a mismatch and a new liquidity provider (i.e. secondary market buyer) trying to solve a problem for the GP. Often this could be a variety of portfolio companies needing more dry powder (but being outside of the investment period). Often there is either a full or partial carve out of assets, an injection of dry-powder, and potentially a change in strategy/parameters for the restructured fund.

For all GP-led deals, they really have been around for ages, but more secondary market buyers are getting into this area for a variety of reasons: (a) potential for higher MOICs (low case 2x net and 20% net IRR) through more concentration, (b) better access to information as you have a direct dialogue with the GP, (c) you avoid buying into a fund which then potentially liquidates (without your input) soon after buying. Naturally the negatives are that the fees are substantially higher, the quality of some of these remaining businesses can be questionable, more concentration, they typically do not cash-flow until exit - so for investors that like a steady stream of cashflows this isn't the best bet.

3. Preferred Equity: Providing liquidity solutions to holders of LP stakes in funds or directly to Fund-GPs. I personally don't like this strategy as you're often capping your upside where as you could just buy a similar asset at a discount and have the same effective risk profile (from an LTV perspective).

4. Credit/Infra/Real Asset Secondaries: Buying passive LP stakes in these strategies

5. Tail-end: Buying LP stakes in older funds. I've seen some groups recently buy assets in 1999-2000 vintage funds (yes, they're still around!) Today 'tail-end' means 10 years or older but I think that's ridiculous as the GFC pushed out the exit for all 2007-2010 vintage funds, so I usually consider tail-end to be more around 12+ years.

6. Distressed: You're often utilizing pref. equity or buying LP stakes for extremely low prices. A lot of these assets are low quality and have serious issues - like full write-off potential. Other situations may be direct investments or buying escrows/legal claims. The focus is on either buying into a distressed situation/seller or distressed asset/GP.

There are other 'strategies' such as late primaries, and various credit strategies such as providing NAV loans but they don't form a very large part of the market.

Question 2:

It really comes down to the quality/quantity of information provided. GP-led transactions will be analyzed similarly to any LBO/direct-PE deal as you have access to the GP and often confidential info that they don't give out to LPs. Passive 'vanilla' LP transactions use a variety of methods, but it's more macro driven and top-down in valuation - i.e., fund benchmarking, manager analysis, single company comps (if you have the data!) etc.

Question 3:

We pay junior staff very well (in my view). Analyst base is usually around 100 and bonus is usually ~50%. Associate comp is usually around 150-180 with ~75-100% bonus allocation.

  • Incoming Analyst in AM - Other
Feb 4, 2022 - 7:22am

Why do you think there is a discrepancy between the comp level at different shops? Thought it should be pretty standardized.

  • GM in PE - LBOs
Sep 24, 2021 - 8:17pm

What sort of modeling do you do in your deal analysis?

Did you find your IB background helpful in the transition?

How well do you feel like you know fund level structures and whatnot since doing this job?

Hardest part of job?

Favorite part of job?

Least favorite part of job?

Whats up with Sameer Shamsi? Is he a prick? Or a sore loser?

Who would you consider the biggest and best known rainmaker in secondary advisory? Nigel Dawn?

  • Principal in PE - Other
Sep 25, 2021 - 5:47pm

Hi there!

Thanks for your questions.

What sort of modeling do you do in your deal analysis?

My firm does 'all' of the secondary strategies out there so there isn't a single way to value an asset. Rather it completely depends on the situation. If it is a GP-led deal then there will often be an LBO model provided and then our analysts will often plug their raw data into our proprietary model. More diversified vanilla LP deals go into our proprietary model which is more macro/top-down and has a variety of sensitivities - the focus is really on the economy and how that may impact exit timing of funds as well as growth. Benchmarking is a large component here but when we drill down to individual companies we do comps - more granular quantitative analysis often isn't do-able as a lot of fund reporting doesn't provide enough company-level metrics.

Did you find your IB background helpful in the transition?

To a degree, yes. It was helpful to understand basic 'institutional' things like modeling and deck preparation, but secondaries really is an animal on its own. I was amazed at how important it is to understand a deal QUICKLY to see if it passes an initial smell test - this takes time, experience, and really strong understanding of back-of-the-envelope math (to be entirely candid!)

How well do you feel like you know fund level structures and whatnot since doing this job?

I feel very strong in this area. It's been an amazing journey and I've learned a lot (and continue to!)

Hardest part of job?

It takes a while to navigate the market and understand who the players are. You can waste a lot of time dealing with certain intermediaries that pitch deals and make you spend time on DD all for it to not be 'real' - it can be frustrating.

Favorite part of job?

Finding small, unique, proprietary, and complex transactions!

Least favorite part of job?

Raising money. It's tiring and feels like a never ending cycle of repetition. 

Whats up with Sameer Shamsi? Is he a prick? Or a sore loser?

I wouldn't know - I've personally never met him or dealt with him.

Who would you consider the biggest and best known rainmaker in secondary advisory? Nigel Dawn?

This is a really hard, and interesting question. While our relationships with intermediaries is important, we really focus on proprietary situations as our bread and butter. Nigel is fantastic, though!

  • GM in PE - LBOs
Sep 26, 2021 - 1:33pm

Can you elaborate a bit on the modeling work you do in your role, particularly on the GP-leds side?

I've seen some of these massive (I truly mean massive, but so unnecessary?) PE secondaries models from the sell-side building fund water falls that are supposed to apparently match how the GP's LPA fund distribution is written. Is this something your shop builds as well? To essentially calculate gross and net IRR and MOIC?

Sep 24, 2021 - 8:36pm
jamesbaldwin, what's your opinion? Comment below:

Thanks for doing this.

What is your favorite(s) interview question to filter out the strongest candidates (both technical and behavioral)? 

  • Principal in PE - Other
Sep 25, 2021 - 6:02pm

This is a great question. I often give 'gut check' like questions to final round candidates to assess their level of familiarity with the asset class. You often can't be expected to get it 'right' but it helps me understand where someone is at.

1. Can you tell me: (a) what is the closing cost for the buyer of the below transaction and (b) what the ballmark MOIC would be at closing and at the end of the deal's life? I try and get them to answer within about 20-30 seconds.

-Record Date NAV: $100

-Price: 80%

-Post Record Date Distributions: $10

-Post Record Date Contributions: $5

-Total Asset Growth on Record Date NAV to End of Deal: 10%

2.  I will often describe a relatively high-level macro-valued deal and have them walk through their understanding of it and if they think it is worth digging into/pursuing from an investment perspective. We often discuss various points of DD one may want to consider based on the given situation.

As you can tell, it's very industry specific. Our analysts will be able to answer the first question within a week and will never forget it after that but it takes time to get into the mindset so we all speak the same 'language'.

Sep 26, 2021 - 12:00am
jamesbaldwin, what's your opinion? Comment below:

Thanks! Adding an additional question - what's your recommendation for a person new to PE Secondaries in how to go about developing the skill of doing "back of the envelope math analysis" to gauge if an investment is worth investing in? 

  • Principal in PE - Other
Sep 26, 2021 - 5:35pm

Sure. There are a variety of ways to go here...

Distress can be a catch-all, and more often than not means special situation or a (deep) value-based approach to investing. The key for us is looking for situations which are as uncorrelated to the market as we can find them,  and looking for small deals/unique situations where we can negotiate extreme discounts. I don't work for Multiplicity but they buy stakes in litigation finance projects/funds - that's brilliant. Not something we do, but shows you can find situations that have zero correlation to public equities.

For my firm, we are looking at single assets backed by mediocre to good quality sponsors which are in trouble. There is often a mistmatch at the fund-level which requires a restructuring and adjustment to the capital structure. The difference between us and an Oaktree is that we don't take over control of the asset and insert ourselves as an operator - we are rather just uncovering situations and acting as a partner. In a few instances we have bought out GPs who have done terrible jobs managing assets and replaced teams, but I still wouldn't see it was direct-pe/distressed-like investing - still relatively passive.

  • Principal in PE - Other
Sep 26, 2021 - 5:00pm

Each firm really is different - I know some principals getting paid like IB associates and others making MF LBO-level comp. Smaller firms will allow you to negotiate. My base is around $375k. I've routinely made around 75-125% in additional annual bonuses and my current carry is worth around $4m and quite solid. So for total cash comp I'm making around ~$800k per year and if we raise a fund every 2-3 years I'll probably get 4-7m in carry out of each one.

  • Associate 1 in IB - Gen
Sep 25, 2021 - 1:24am

What's your least favorite thing about secondaries? Would you advise juniors to move into the sector?

  • Principal in PE - Other
Sep 26, 2021 - 5:03pm

Hi there!

I was mentioning in another post above that it certainly can be tiresome dealing with 'BS' intermediaries that pitch deals which don't have a hope of going through.

I certainly would advise juniors to move directly into this area for a variety of reasons:

1. The sector is booming - lots of opportunities.

2. We aren't as picky regarding education and where you came from prior to - just look at Ardian's team...A lot of them were just interns out of their undergrad.

3. The hours aren't THAT bad and the pay is pretty decent.

4. I personally find the work interesting as there are just so many different types of deals to analyze.
 

  • Principal in PE - Other
Sep 26, 2021 - 5:06pm

At our shop we typically hire associates who have 2 years of investment banking experience or a senior associate that has had a mixture of traditional IB and maybe a year or so of secondary advisory from a Lazard or PJT etc. You really do not need an MBA for this field.

Honestly, I've seen a real mix of backgrounds at both the junior, mid, and senior level at firms. Ardian hires people right out of their undergrad with virtually no experience beyond an internship. Some firms hire people with a audit/accounting backgrounds, others go for M&A advisory, corp. dev, consulting, IB - it's a mixed bag. There certainly aren't as many barriers to entry like a standard LBO PE fund. All we look for is some kind of 'transactional experience'.

  • Associate 1 in IB - Gen
Feb 13, 2022 - 12:02pm

You do not need an MBA but PJT and Lazard do hire associates directly from MBA programs (as do a number of buyside firms).

  • Analyst 1 in IB - Cov
Sep 30, 2021 - 8:44am

Hey - thank you for doing this! Couple questions if that's okay:

1) To follow up on the above, are their particular traditional IB groups that are well-favoured? I'm in a sponsors coverage group and interested in the space.

2) Who in your opinion are the best and/or most interesting secondaries players in the London/Europe markets (if you happen to know)?

Cheers!

  • Principal in PE - Other
Sep 26, 2021 - 4:32pm

I don't think very highly of them to be brutally honest. Whitehorse has taken all of the senior talent and since Woolhouse left they have made some very highly questionable appointments and promotions amongst the senior ranks.

Further, they have billions of dollars at their disposal yet they've been a "net-seller" of assets for years. They don't source any deals and don't even participate in processes as a lead - they simply review a plethora of co-investments from brand name / blue-chip sponsors.

  • Analyst 2 in IB - Cov
Sep 26, 2021 - 8:00pm

What are the questionable appointments you are talking about?

  • Associate 1 in HF - RelVal
Sep 26, 2021 - 12:31pm

Good afternoon, thanks for doing this Q&A. Can you shed some light as to the different process/any nuances with credit secondaries? What are you focusing more of your analysis on here? Any advice for someone looking to recruit into credit secondaries from a liquid credit team? Cheers.

  • Principal in PE - Other
Sep 26, 2021 - 5:26pm

Great question. This area is not my forte - we have team members who specialize solely in this area. What I will say is that we routinely do the same types of deals (and run up against) non-secondary firms that specializes in: direct lending, mezzanine finance, nav loans, senior debt, pref. equity - we think of distress as a completely different asset class. The difference between us and a regular credit fund is that we really just back sponsors - we take no control of the assets or have any real stake - it's a passive investment. Sorry I couldn't be more helpful.

Sep 26, 2021 - 6:42pm
jeffsezer, what's your opinion? Comment below:

Current undergrad (junior) here. Interned at an E&F this past summer, which is where I got exposed to the secondaries business (stepstone, harbourvest, etc.). What do hours look like at the junior level, and what advice would you have for recruiting out of undergrad? Did you consider things like PE/GE/VC/HF/Corporate out of IB? I also heard "secondaries can be a career ender in a good way," so would also appreciate your thoughts there. Thanks!

  • Principal in PE - Other
Sep 26, 2021 - 7:01pm

Hi there,

On the high end I'd suggest around 70 hours/week. On the low end around 45-50. I think the standard would be around 55-60 hours for a junior. I work longer hours than my staff, not because I have to, but because I want to.

We consider all backgrounds, as long as there is some kind of transactional experience or understanding. 2 years of IB would be the most natural way into an associate role but there are other routes to get there, too.

Not sure on the 'career ender' comment - I firmly believe you are your own master of your future. Don't let anyone feed you BS about what you can/can't do.

Recruiters - I'm not that tapped into analyst level recruiting, unfortunately! Sorry!

  • Principal in PE - Other
Sep 27, 2021 - 7:10am

As soon as we "greenlight" a deal for DD all of the public and soon to IPO assets are put on a restricted list. No secondaries staff will be allowed to buy shares/additional shares.

Staff are also not allowed to try and do side deals by buying private markets assets directly - our focus is on our fund (and in turn our LPs) gaining exposure.

  • Principal in PE - Other
Sep 27, 2021 - 9:54am

From Associate to VP it became more about: asset/deal selection, managing teams/processes, deal negotiation.

From VP to Principal it became more about: fundraising, relationship management, corp. dev., reviewing deals from a distance and providing advice

I imagine the more senior I go the less I will be involved with day to day deals and more it will become about being an ambassador for the firm's image with media, corp. dev. activities, fundraising.

To be honest with you, I think VP was the most enjoyable 'sweet spot' for me, granted I always had good principals/MDs above me that gave me a fairly long leash to prove myself.

  • Principal in PE - Other
Sep 27, 2021 - 3:36pm

Hi there. It looks like my response didn't go through so let me try again!

Associate to VP: focus shifted more towards managing transactions/people, more higher-level execution related with less modeling, more "fine tuning" associates modeling and helping with their assumptions as opposed to building or compiling.

VP to Principal: more bigger picture once again. Started focusing more on fundraising and relationship management, interviews/marketing, corporate development, owning really large processes, generating proprietary dealflow.

It seems like the higher you go in most jobs the more you become focussed on biz dev. In my case, I actually really enjoy investing and working directly on deals so for the future I'd probably want to do way less of the "business building" and simply act as a "do-er". The sad reality is that I also have to earn my keep and there needs to be a rationale to pay a someone way more to do associate/vp-level work.

I think in order to craft a position I am comfortable with for the next 5-10 years I'd need to lateral elsewhere and become more of a deal guy than just a face within a large team.

  • Principal in AM - Other
Sep 27, 2021 - 4:01pm

Thanks for the response man. Reason I asked is I am almost in the same boat as you albeit in the co-invest group of a large private equity fund of fund platform. I love the deal work but its clear that as I move up the ranks, the job becomes less about investing and more about managing people, attending conferences, fundraising & LP relations and getting our name out there. Its not that I dont enjoy doing that but I miss being more deal-oriented.

  • Prospect in IB - Cov
Sep 26, 2021 - 11:25pm

Hi, I really appreciate you doing this! Curious on what're your thoughts on taking a PCA job out of undergrad at a firm like Evercore/Jefferies/Lazard vs a traditional M&A job at a MM bank? Specially when you're not sure what you want to do in the long run.

  • Principal in PE - Other
Sep 27, 2021 - 9:57am

Hi there!

I think it would be a great way to start your career, granted, a lot of analyst-level PCA work is pretty boring and administrative: populating datarooms, redacting documents, getting approvals for buyers from GPs. The advice I would give you is: (a) focus on an organization that has both traditional IB and PCA so you can switch if you don't like the work, (b) focus on shops that excel at GP led deals as well as traditional secondaries, (c) be picky about which shop you ultimately go with - there is a pretty large gap in quality and pay between the likes of Evercore vs. Cebile.

Sep 27, 2021 - 12:49am
jamesbaldwin, what's your opinion? Comment below:

1.) What sparked your interest in Secondaries (why private equity and why this specific strategy)?

2.) From what you described earlier in your response to another question, it seems that you have worked across a variety of deals. With a Secondaries background, what other types of other private equity strategies could one potential pivot to (common moves you have seen and ones that may be possible)?

  • Principal in PE - Other
Sep 27, 2021 - 10:02am

Hi there. Great questions.

1. I was in IB for 4 years, mainly doing M&A and it became very tiring always being the advisor - I wanted to break into the investment side. I didn't have an ivy-league education or frankly that great of a network so I knew I wasn't going to be working in direct private equity at a tier 1 shop. However, secondaries just weren't that picky and the pay drop vs. hours I get back was worth it to me. Evidently, I also really started to enjoy just how varied the deal-types/strategies were. Granted, some firms only focus on a single very boring niche but a lot of secondaries shops are quite diversified in approach.

2. This is tough. At the junior level (analyst and associate) I've seen people go back to IB, switch to HFs, or merge into direct pivate equity (at tier 2 shops). From VP onward I haven't seen people really switch out of secondaries, apart from bopping between PCA sell-side and IR type roles on the buyside. It's a small-ish industry so everyone knows everyone.

  • Principal in PE - Other
Sep 27, 2021 - 1:52pm

I view them similiar to Landmark or Lexington - they are diversified, in that they do most of the deal types out there and quit large. Quality of deals and returns are equally nothing to write home about or be upset with, just very average.

  • Principal in PE - Other
Sep 27, 2021 - 1:55pm

I only know of RCP and 50 South - both raise traditional funds of funds as well. Adams Street may have an office there, too. I think Northleaf has a credit team in Chicago.Weekend work isn't as much of a thing in secondaries. Over the years I've only done it if we have a major deadline on Monday or if something really urgent comes up. Work-life balance is huge compared to traditional PE.

  • Analyst 1 in IB - Cov
Sep 27, 2021 - 5:16pm

I just started at a secondaries group at a bank. What type of questions should I be asking to best set myself up for a buyside transition? Also are there any secondary firms in south Florida?

  • Principal in PE - Other
Sep 27, 2021 - 5:45pm

I would be going out of your way to be as helpful and responsive to buyers as you can. There is one analyst that I'm just about to try and poach because he is super professional and incredibly responsive when we are working on deals together.

I don't know any secondary firms in Florida but in Palm Beach is Jonathan Costello - he is looking for junior staff for his advisory firm (Devon Park Advisors).

  • Analyst 2 in IB - Restr
Sep 27, 2021 - 7:35pm

How do you view Glendower capital? Saw they're based in the UK but with a sizable US presence, as well as recently acquired by CVC. Had a few buddies recruit at the larger secondaries firms, but am unsure of how glendower compares to the bigger guys 

  • Associate 2 in PE - LBOs
Sep 28, 2021 - 11:36am

I saw your comments on hiring at the associate level, but how do firms typically source mid-level hires? 
 

Do you think secondaries shops would see someone with direct PE experience as valuable or give any "credit" for their years of experience? I've got 2 years IB and 3 years direct PE experience and am increasingly interested in trying to make a move to secondaries for the long-haul, but not sure if possible.

  • Principal in PE - Other
Sep 28, 2021 - 1:10pm

By mid-level, I assume you mean VP and above? If so, we hire from the buyside for this role - either a VP lateral from another secondary buyer or a senior associate promotion from another shop. I have seen other firms hire from the sell-side straight to VP, but not us - our expectation is that VP and above already have some principal investing experience in secondaries.

A friend of mine up north hired a guy who was a direct PE Sr. Associate (LBO) - they hired him as a VP for secondaries. Needless to say, he was incredibly smart and the transition wasn't hard, but he was a disaster of a hire and they ended up getting rid of him - more attitude related. I'm sure some people with a direct PE background may switch over but it isn't that common. What firms are you interested in?

  • Analyst 1 in IB-M&A
Sep 30, 2021 - 2:16pm

Thanks for doing this, I'm in an M&A group in IB and starting PE recruiting, however, I've been intrigued by secondaries and this thread has been very helpful in learning more about the space.

Are there any particular websites or resources that you can point to for someone who may be networking/interviewing with a secondaries firm to learn more info about the space and prep for interviews?

  • Principal in PE - Other
Oct 1, 2021 - 12:04pm

They do. There was a question regarding this above. I've done a few of them (as a potential employee) and all had a technical element as well as more behavioural questions to gauge understanding of the subsector.

  • Investment Analyst in PE - Other
Oct 2, 2021 - 12:04pm

Thoughts on Pomona Capital? Any up and coming shops to look out for? 

  • Analyst 1 in IB - Cov
Oct 3, 2021 - 8:28pm

Is primary experience also valuable to secondary recruiting with some secondaries experience? Or is it better to have solely secondaries experience.

  • Analyst 3+ in PE - Other
Oct 4, 2021 - 4:18pm

May I ask you if at your firm there is any pregiudice on people coming from the LP side (i.e. pensions/endowments committing their own capital to primary & secondary funds - basically captive FoFs)? For example, would a 33 years old candidate with 6 years of experience at an unheard endownment with a significant AUM have a shot for an associate position at your shop?

Thanks

Oct 5, 2021 - 12:03am
Incoming Yr. 1, what's your opinion? Comment below:

Thanks for doing this Q&A. I had a few questions listed below:

- What are you thoughts on BlackRock Private Equity Partners and GCM Grosvenor (track record, comp, etc.)?

- If you win offers from multiple secondaries funds, how would you go about deciding which offer to go with? Understood that culture and fit are important but for example, is it better to work for a place that does more GP led transactions?

- Realize you might not have the most informed answer for this one, but what are your thoughts on a long-term career in the E&F space? Asking this since I've often seen people with FoF/secondaries experience transition to an E&F.

  • Principal in PE - Other
Oct 5, 2021 - 11:10am

Thanks for your questions.

1. Blackrock will obviously do exceptionally well in this space, no questions. I would see their secondary strategy really as a more 'passive' extension of their direct PE (LBO) arm. They're going to raise a substantial amount of money and will just do single asset deals / carve-outs. I imagine they will also chase very large opportunities and have significant competition with the likes of Ares, ICG, Portfolio Advisors, Partners Group etc. I have personally never dealt with GCM so I have no idea about their returns and comp structure. They're also GP led but their latest fund is ~$700m so they'll probably be taking a much more diversified approach to the GP-led market and focus on syndication.

2. Unless you are going to work for like Blackrock, I would not work at a firm that only does GP-led deals. I would look for: (a) the firm's ability and desire to raise capital, and larger funds each time, (b) your line of sight to senior management (some associates really get no visibility past their VP), (c) overall team culture - there are quite a few pricks out there. All things being equal, firm's that have a bias to GP-led deals will pay a bit better as they can usually get away with charging slightly higher fees to LPs.

3. I guess if you want an EVEN BETTER work/life balance this may be a good idea but it really depends on the institution. I personally couldn't do it as I have an aversion to bureaucracy and my long term prospect is carried interest so I can retire young and focus on my kids/family.

  • Associate 3 in PE - Other
Nov 13, 2021 - 7:20am

On the point of retiring young.. surely it will take a long time (~10 years) before you see sig. carry cheques coming through?

  • Analyst 2 in IB-M&A
Oct 6, 2021 - 12:15am

What specifically do you or people in the industry look for when making associate-level hires? What distinguishes someone in your eyes as someone who would do good, vs someone who would do great? 
 

Also, when determining who to move up to VP, what aspects do you consider?

Oct 6, 2021 - 12:38pm
dontwanttosayname, what's your opinion? Comment below:

Thanks for doing this - very helpful.

I am interning at a secondaries firm this summer, and I am interested in what I should be practicing during the school year that will allow me to be more fluent with the language and overall aspect of the job. Any tips on what books I should read, what modeling I should learn, ETC.

Thank you in advance. 

  • Analyst 1 in IB - Gen
Oct 7, 2021 - 1:30am

Could you walk through lifestyle and comp differences at the MD/Partner levels between secondaries buy-side and secondary advisory?

I've seen lots of people move from PE secondaries to secondary advisory and was always curious why they make that reverse move

  • Associate 1 in IB - Gen
Oct 7, 2021 - 3:39pm

The carry pool for secondaries funds is smaller than traditional PE shops which means 1) comp differential between sell-side and buy-side isn't as big and 2) professionals aren't leaving that much on the table by leaving. Sell-side (primarily the Lazard/Evercore/PJTs) has also increased cash compensation mirroring the increase in M&A groups. Secondaries is also rapidly expanding - if the PE secondaries fund has a specific strategy (LP-leds for example) then you're not really taking advantage of the broadening opportunity set.

I will caveat that there are definitely firms where this is not the case and you can get paid more and do more interesting work on the buyside but wanted to comment why I have heard about some professionals making the shift.

At the end of the day do you want to be an investor or an advisor? That is the key question with no right answer. Some people like the advisory side of things and some people prefer the investment side of things.

  • 1
  • Analyst 1 in IB - Gen
Oct 8, 2021 - 9:45am

Thanks. How about the hours at the Principal level at a large secondaries investor vs. D/MD level at a EVR/PJT/LAZ?

  • Associate 1 in IB - Gen
Oct 12, 2021 - 7:19pm

Just to piggyback off of this - of the large players, where would you join as a more junior employee looking to stay in the industry? Are there any tiers in your mind? Not just of the returns but employee experience.

Oct 14, 2021 - 3:39am
Watermelon Moon, what's your opinion? Comment below:

This is really helpful! Thanks for starting this thread! I have 2 questions:

1) What do you think about Pantheon?

2) I have 4 years IB experience now (not BB) and thinking about moving to the space. But it seems to me that if I join a secondary fund now, I'll start as an associate, then I'll need 2 years working as a senior associate before being promoted to VP. It means 7 years in total before VP. Is it normal / common practice?

Thank you.

Oct 14, 2021 - 5:46pm
Captain Rex, what's your opinion? Comment below:

Thoughts on HarbourVest? And would you consider a PE internship sophomore year with them a good gig?

  • Analyst 1 in IB - Cov
Oct 15, 2021 - 11:00am

He covered HarbourVest multiple times above. Also, considering it is a brand name PE shop, it would be a good place to intern. 

Oct 15, 2021 - 7:56am
chromium73, what's your opinion? Comment below:

Just want to say I really appreciate this post. I moved to the secondaries space 4 yrs ago mostly on a whim (liked the firm, location, creativity and better wlb with still good comp). Wish I had a guide like this back then.

Feb 28, 2022 - 10:03pm
Kaka1216, what's your opinion? Comment below:

Hey, thanks for the post! just curious what's the work life balance like and what's the busiest time in the year.

  • Analyst 1 in IB - Cov
Oct 15, 2021 - 10:59am

Have you interacted at all with MS Alternative Investment Partners? They seem to be active across a variety of verticals but curious about how they're viewed within the industry. 

  • Prospect in IB-M&A
Oct 25, 2021 - 6:23pm

How hard do you think is lateraling from analysts roles (hired into secondaries funds out of undergrad) at shops like Landmark, Glendower to GS & BX? Will they have a leg up over the traditional IB background? Thanks!

  • Prospect in IB-M&A
Oct 26, 2021 - 8:34pm

Hey, really appreciate you doing the Q&A! Just wondering if you have heard of Newbury Partners? I looked at their website and they seem to hit some of the components that you mentioned were good to look for in secondaries shops, but haven't really seen them on forums.

  • Associate 1 in IB - Gen
Oct 28, 2021 - 12:57am

Yes - they're a reputable secondaries shop. I believe they're mostly LP stakes but could be wrong.

  • Intern in PE - LBOs
Oct 28, 2021 - 4:12am

Thanks so much for doing this.

One subject hasn't been covered yet.

What about the technical questions / modeling test during Secondary Advisory interviews at the analyst level?

If you had to interview someone, what questions would you ask on the technical aspect?

I heard transactions are more and more complex because of GP-led transactions.

  • Analyst 1 in IB - Cov
Nov 9, 2021 - 2:28pm

I just went through a process with a firm listed above and got an offer. Technicals we're a lot more difficult than IB technicals but aren't too hard if you've done an IB SA. Should be easily able to do a paper LBO, excel LBO, and most hard accounting and finance technicals. Also very important to have a good reason why you're interested in secondaries. 

Nov 9, 2021 - 5:58am
Orangejhawk, what's your opinion? Comment below:

Hi! Thanks for doing this! I am Active Duty military with about 18 months left until I transition. I am early 30s and have an MBA, what else, besides networking of course, can I do to make myself competitive? I am excited for this transition but concerned that I would be overlooked due to lack of relative experience.  

  • VP in IB-M&A
Jan 9, 2022 - 9:22pm

Large seg accounts for pensions. They buy a ton of funds in the LMM space on a primary and secondary basis. Their head of secondaries is a dickhead.

Dec 21, 2021 - 1:06am
get_off_my_lawn, what's your opinion? Comment below:

 Is it possible to break into secondaries at places other than Ardian with an internship and then become an analyst or is the IB component a prerec and then you go to associate?

Jan 18, 2022 - 7:00pm
plusseven, what's your opinion? Comment below:

Bump -

1) do you mind walking us through the key selections criteria for the deals? What will be your top focus i.e fund vintage, manager etc? 

2)  do you mind elaborate a bit on how fund level to LP level cash flow work? i.e. detailing the GP carry / mgmt fee. 

  • Analyst 1 in IB - Cov
Jan 18, 2022 - 7:37pm

Hi I'll be joining Stepstone Real Estate soon and wanted to hear your thoughts about it (general impression, performance wise, reputation)

I quote from its website: The business is focused on executing re-capitalisations/special situations, co-investments/joint ventures, secondaries and fund investments

Stepstone is also listed as a top 50 manager in PERE100I was wondering whether you would consider Stepstone a GP or an LP, given it does recaps/coinvest/JV (if we ignore the part about primary fund investments ie FoF)

Could you explain more about recaps, coinvest, JVs and perhaps indicate whether they fall under the remit of an LP or a GP?

In terms of carry and comps, would Stepstone be closer to a GP or an LP?

Also wondering whether I would do work akin to a direct PE in Stepstone given its strategy, and how possible it is to exit into a direct PE shop

  • Intern in IB-M&A
Feb 2, 2022 - 10:50am

Hi folks

I have a case study with a Private capital advisory business at an EB (Lazard/Evercore/PJT). Has anyone undergone something similar? Would anyone know what it could be? Would seriously appreciate any help and reward with silver bananas!

They advise both LP and GP leds. How does one value an LP led vs a GP led? 

Are the NAVs on the LP leds valued at book values or using comps on EV EBITDA basis?

For GP Leds I would assume this is mostly an LBO valuation? 

Thanks!

Feb 28, 2022 - 10:34pm
shortthetvix, what's your opinion? Comment below:

do you think someone from a corporate banking role (housed within IB) would have a shot at secondaries? or lateral to IB and then to secondaries? thanks for doing this

  • Intern in PE - LBOs
Apr 20, 2022 - 2:22am

I just came across this post and wow is it helpful. I've learned so much about secondaries, thank you! A few questions:

1) Where does Partners Group line up in the secondaries space in North America and Europe in terms of prestige, returns, capabilities, comp, etc.?

2) How the hell do you have $800k comp and $4M in carry?!?! Seems like you're just around early 30s - kudos to you. On this, did you negotiate well for your carry, did your fund returns prove exceptionally well, or both?

3) How long does the typical secondaries fund last, 10 years? And what would be considered top tier returns for a secondaries fund, 4x MOIC in 10 years?

4) Thoughts on Brookfield getting into secondaries?

5) Would you recommend going into a specific asset class specialist role in secondaries and why? For example, I've seen BX, PG, and BAM all have real estate secondaries roles this past year.

6) This may be a common question, but what are exits like from secondaries? Can you go into HF or direct corporate PE?

7) The MFs you frequently named are GS AM and BX SP. At these shops, is pay in line with what you get at your firm, better, or a bit below? 

  • Principal in PE - Other
Apr 20, 2022 - 9:10pm

Anonymous Monkey

I just came across this post and wow is it helpful. I've learned so much about secondaries, thank you! A few questions:

1) Where does Partners Group line up in the secondaries space in North America and Europe in terms of prestige, returns, capabilities, comp, etc.?

2) How the hell do you have $800k comp and $4M in carry?!?! Seems like you're just around early 30s - kudos to you. On this, did you negotiate well for your carry, did your fund returns prove exceptionally well, or both? 3) How long does the typical secondaries fund last, 10 years? And what would be considered top tier returns for a secondaries fund, 4x MOIC in 10 years? 4) Thoughts on Brookfield getting into secondaries? 5) Would you recommend going into a specific asset class specialist role in secondaries and why? For example, I've seen BX, PG, and BAM all have real estate secondaries roles this past year. 6) This may be a common question, but what are exits like from secondaries? Can you go into HF or direct corporate PE? 7) The MFs you frequently named are GS AM and BX SP. At these shops, is pay in line with what you get at your firm, better, or a bit below? 

OP here. Got a new account.

  1. Returns are below average. 13-14% type IRRs and those are levered, too. Prestige has gone down hill a lot over the past five years. Lots of departures at the senior level in Zurich. Team in Denver isn't as strong. Comp is below market. Very tough to get deals done - large bias to large cap LBO. Fund is 50/50 LP stakes with very heavy leverage and GP led deals. There are better places to work.
  1. 300k base, 100% bonus, 200k in syndication fee. Carry was negotiated when I joined. Funds have done extremely well.
  1. Usually around 8+2 but I've seen funds as short as 5+2. Traditional LP secondaries funds look to make around 1.5x with a 15% IRR. With leverage and recycling maybe you get to 1.7x and 17% or so. GP-led funds target around 2x and 20%. 4x type funds would be an outlier for sure, but it does happen.
  1. Not much really. I think the firm made a mistake with the Oaktree acquisition and 17Capital was a bit random. I feel like Brookfield will turn into Partners Group, which isn't a good thing.
Apr 22, 2022 - 9:49am
bekele, what's your opinion? Comment below:

Hi OP, 
Many thanks for the insights - most useful I've read on secondaries. Any comment on the extent to which the location, size of fund and % mgmt fee at each secondary GP may be impacting the comp? 
I'm a VP at a non-US fund at 1-3bn range current vehicle and it just seems like the cash comp gap with what you presented is massive (about 4x lower, excl. carried - albeit at a seniority level below). Any intel on perceived difference between continental Europe and the US on comp would be super useful !
Happy to chat directly if easier

  • Principal in PE - Other
Apr 20, 2022 - 9:12pm

Anonymous Monkey

I just came across this post and wow is it helpful. I've learned so much about secondaries, thank you! A few questions:

1) Where does Partners Group line up in the secondaries space in North America and Europe in terms of prestige, returns, capabilities, comp, etc.?

2) How the hell do you have $800k comp and $4M in carry?!?! Seems like you're just around early 30s - kudos to you. On this, did you negotiate well for your carry, did your fund returns prove exceptionally well, or both? 3) How long does the typical secondaries fund last, 10 years? And what would be considered top tier returns for a secondaries fund, 4x MOIC in 10 years? 4) Thoughts on Brookfield getting into secondaries? 5) Would you recommend going into a specific asset class specialist role in secondaries and why? For example, I've seen BX, PG, and BAM all have real estate secondaries roles this past year. 6) This may be a common question, but what are exits like from secondaries? Can you go into HF or direct corporate PE? 7) The MFs you frequently named are GS AM and BX SP. At these shops, is pay in line with what you get at your firm, better, or a bit below? 
  1. No, I would avoid too much specialization. The market and returns are quite there or rich enough for RE secondaries yet.
  1. I don't think you really need to exit if you're earning well. I haven't seen maybe exits out of secondaries to directs.
  1. GSAM will pay better.
  • VP in PE - Other
Apr 21, 2022 - 9:42am

Hi OP, 

Thanks a lot for this thread it's been extremely helpful! 

Currently am interviewing for some VP opportunities in secondaries in the US/UK, but wanted to get a sense of what of TC is market right now. These secondaries funds are all relatively large/MF level, and probably charge 10% carry on average.

Base/Bonus I'm guessing not too much variation, but carry bps is a total black box, and not sure how much say, carry dollars at work I should aim for if I were to start negotiations. Thanks very much!

  • Principal in PE - Other
Apr 22, 2022 - 9:44am

10% carry is pretty low. The only groups I've seen charge this is Commonfund (lol, joke group) and Coller if you're a large institution. Most MFs charge between 12.5-15%. sub 1bn funds typically charge 15%, and I've seen some do a step up 15-20% with a MoC and IRR hurdle.

If you're gonna be at like a Landmark, Lexington, Coller, Blackstone, Ardian you're gonna get like 20 bps (if that) in carry. That's why I like working at smaller funds cause at least you're more in the mid or high single digit range and it can be multi-millions. Also important is to go with a group that does co-invest with their LPs so you can bank extra cash through that. Larger groups don't do that.

  • VP in PE - Other
Apr 24, 2022 - 9:26pm

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Veniam natus voluptas deleniti vitae sit soluta inventore. Sequi quo culpa quos et.

Apr 22, 2022 - 9:54am
bekele, what's your opinion? Comment below:

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  • VP in PE - Other
Apr 24, 2022 - 9:29pm

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Est quia impedit est consectetur qui corrupti. Perferendis quos alias laboriosam corporis facere ut. Nostrum quas fuga inventore omnis blanditiis sed quia. Aut ut dignissimos quia est rerum aperiam.

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  • Associate 3 in PE - LBOs
Apr 26, 2022 - 6:39pm

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  • Analyst 1 in PE - Other
Apr 27, 2022 - 9:18am

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