LP-led secondary

An LP-led secondary is a transaction on the unlisted secondary market initiated by an investor, or Limited Partnership (LP), who sells all or part of its fund units to another investor before the end of the fund's life. The seller seeks liquidity, a rebalancing of its portfolio or an exit from a management relationship, without waiting for the natural liquidation of the underlying stakes.

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This type of transaction differs from the GP-led secondary, driven by the management team, which for example organises the transfer of assets to a Continuation fund. In the LP-led, the initiative and negotiation bear on the units themselves, whose price is set relative to the most recent net asset value, with a discount or premium reflecting the quality of the portfolio and market conditions.

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For example, an investor holds units valued at 4 MCHF at the last net asset value. Needing liquidity, it sells them on the secondary market at a 10% discount, that is 3.6 MCHF, to a buyer who takes over its position in the fund before its term.

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The LP-led secondary market has grown strongly, offering investors a flexibility the closed-end model lacked. It also provides a useful valuation reference for assessing the Illiquidity discount attached to fund units, a dimension relevant to any holder contemplating an early sale.