I’ve been hearing about traditional growth and buyout firms making investments in GP-led secondaries. Accel-KKR comes to mind as a recent example. I have also heard rumblings of Norwest and Elliot (the private equity arm) getting involved in the space too. Any thoughts on why this might be the case? Are they paying full economics to the incumbent GP too? What do you think this means for traditional secondaries players who may not be quite as sophisticated in their sector diligence?
Also saw that Lexington Partners closed on a $22.7 billion. This is insane. I had no clue secondaries was getting this big.
What are you thoughts on these developments?
Not sure what comp is at these larger secondaries funds, but I might take a strong look at jumping ship given the ostensible lifestyle improvement.
Bloomberg article today on Leonard Green Partners bringing over two senior guys from BX and AlpInvest to start their GP-led strategy so add them to the list
Edit: To answer some of your questions:
yes they typically are paying full economics. The one Elliott deal I saw I’m pretty sure they gave the GP super carry too. However, Baupost for example is known for giving cheaper economics.
If you take Astorg’s reason for getting into the space it’s because they would see failed sell-side process that pivoted to CVs for strong businesses. So their rationale was to use their industry expertise to approach sponsors before the sell-side and get in that way.
I think there is space for both the traditional guys and the direct PE shops. Most of the direct PE shops aren’t doing LP-leds so the traditional guys will always have that. I’m sure there are also situations where a GP may not want direct PE shops in their GP-led deals for confidentiality / competitive reasons and therefore secondaries shops are the only option. Some secondary investors can also provide something a direct PE shop would never which is primary capital for their next fundraise. Maybe not an explicit staple but a relationship has been formed through the GP-led that could result in a primary investment.
All-in-all I think it’s good for the space. The one thing secondaries needs is more capital for all the available deals.
Based on the most helpful WSO content, traditional growth and buyout firms venturing into GP-led secondaries is indeed a trend that's been observed. Here are some thoughts on why this might be happening:
As for the traditional secondaries players, the entry of growth and buyout firms into their space could mean increased competition. However, it also validates the market's potential and may lead to more innovation and specialization.
Regarding Lexington Partners' $22.7 billion fundraise, it's a testament to the scale the secondaries market has reached. This growth reflects investors' appetite for secondaries as an asset class and the increasing sophistication of secondary transactions.
In terms of compensation at larger secondaries funds, it can be competitive with other areas of private equity, but this can vary widely based on the fund's size and performance. The perceived lifestyle improvement might be due to the nature of secondaries work, which can be seen as less intense compared to direct PE investments, but this is not a rule and can differ from firm to firm.
If considering a move, it would be wise to conduct thorough due diligence on the specific fund's culture, work-life balance, and compensation structure.
Sources: Differences between Co-invest and Secondaries?, Q&A: PE Secondaries Principal, Q&A: PE Secondaries Principal, Why is fund of funds a thing, Clarity on the Growth Equity Landscape
How is lifestyle and wlb at the top secondaries firms?
There’s a lot of variability.
Generally speaking, I’d say WLB can be a touch better to significantly better than M&A / direct buyout. On the sell-side, the top shops tend to be sweaty (Evercore stands out as one you’d get crushed at - just the nature of 50% market share). The buy-side has a similar story, although I think the top buy-side shops can generally have slightly better WLB than the top sell-side shops. I think across the board, WLB does get better with seniority which I don’t think is always the case for M&A / direct buyout.
I’d also add that toxic cultures seem to be pretty rare in secondaries. Unlike the things I read about direct buy-out on here, I think there are fewer hardos in secondaries. I think this is largely because people who join secondaries are passionate about finance / markets but they don’t live and breath it like direct guys do. Most people that join and stay did so precisely because they wanted better WLB and so the culture is naturally better. If you work a lot, it’s because there’s a lot of deal flow, not cuz you’re working on pointless tasks.
Thank you. I'm looking at buyside opportunities. Would you happen to have any insight on Lex specifically?
Does GP-Led Single Asset Continuation Vehicle mean that the secondary firm is buying one company from another firm? How is that different from the traditional buyout?
Does GP-Led Single Asset Continuation Vehicle mean that the secondary firm is buying one company from another firm? How is that different from the traditional buyout?
No. They are buying out the LPs in the GP’s legacy fund. It’s a very different transaction from a traditional buyout for a number of reasons. Secondary investors are passive minority investors simply seeking to swap out a GP’s LPs at or near the current mark.
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