Understanding today's GP-led deals
GP-led transactions are distinct from more traditional secondary deals in which LPs sell their existing interest in one or more partnerships, often involving multiple underlying managers and companies. In contrast, GP-led transactions are initiated by the manager of a private equity fund, often to restructure one or more of their funds and provide liquidity to existing LPs. Some market participants may have historically viewed GP-led transactions as a way for underperforming managers to extend the life of their franchise, which we believe is a view rooted in the early days of the GP-led market from a decade ago. Since then, these deals have evolved substantially and are now broadly embraced by high-quality GPs as a flexible means to hold on to key strategic assets that are often top performers – giving them further runway and capital to generate additional value.
These transactions also provide GPs the ability to offer existing LPs the option to either lock in performance associated with legacy assets and receive liquidity, or to retain their existing exposure, often by reinvesting in a newly formed vehicle created as part of the transaction. Practically speaking, GP-led transactions have evolved to offer all parties a viable solution for navigating current market challenges, while also directly addressing the liquidity needs of existing LPs.
While much has changed in 2022, we believe the secondary market remains vibrant and poised for further growth. Secondary market deal volume reached a record $134 billion in 2021, experiencing a compound annual growth rate (CAGR) of 23% between 2013 and 2021.¹ Over the same period, the GP-led segment grew at a CAGR of 37%, and volume in 2021 reached $68 billion.² Once a small subset of the overall secondary market, GP-led deals have soared to account for more than half of all secondary deal volume since 2020.³
Secondary market growth
Growth of private markets - $3.2 trillion in primary capital raised over the past 5 years
Increased churn rate of LP interests
Acceleration of GP-led transactions
Source: HarbourVest, Evercore: Secondary Market Survey Results, data as of June 30, 2022 (secondary data) and Preqin, data as of December 31, 2021 (primary capital raised).
While the bespoke nature of GP-led transactions has produced a variety of structures, the vast majority involve creating a new vehicle, called a continuation fund, that purchases one or more select companies from the GP’s existing fund(s). The continuation fund is managed by the same GP and backed by new secondary investors plus any LPs that wish to retain exposure to the asset(s). The new vehicle typically resets the fund term and includes a new incentive structure for the sponsor in order to maximize alignment between the sponsor and investors in the continuation fund.
GP-led deals can vary markedly in concentration – from consisting of a single company to dozens of companies. While GP-led transactions have broadly made up more than 50% of annual secondary transaction volume since 2020, single asset deals rose to almost half of the total GP-led activity in 2021 - giving both GPs and LPs valuable flexibility to actively manage portfolios or meet rising liquidity needs. Preliminary data for the first half of 2022 suggests that single asset deals have represented a similar proportion of GP-led deal activity relative to 2021.⁴
Proportion of GP-led asset deals involving a single asset
1 Evercore: Secondary Market Survey Results, January 2022. 2 Evercore: Secondary Market Survey Results, January 2022. 3 Evercore: Secondary Market Survey Results, January 2022. 4 Evercore: Secondary Market Survey Results, August 2022.