Secondaries · Global
Secondaries explained: buying existing stakes in private funds
How secondary transactions work, why they exist and what to check.
Summary
A secondary transaction is the purchase of an existing investment or fund interest from another investor, rather than a new commitment to a fund.
- Secondaries can give earlier visibility of what the underlying assets are.
- They are often priced at a discount or premium to reported value.
- They remain illiquid and depend on information that can be incomplete.
What is a secondary?
It is buying a stake that someone else already holds in a private fund or company.
Instead of joining a fund at its launch, the buyer takes over an existing position. Sellers may want cash, need to rebalance or have to reduce exposure. Buyers get access to a portfolio that already exists.
What kinds of secondaries are there?
The main types are fund-interest sales, direct stake sales and continuation vehicles.
In a fund-interest sale, an investor sells its position in a fund. In a direct sale, an investor sells a stake in a company. In a continuation vehicle, a manager moves one or more assets into a new vehicle and offers existing investors a choice to sell or roll over, which can create conflicts the buyer should examine.
How are secondaries priced?
They are priced by negotiation, usually relative to the reported net asset value.
A price below reported value is called a discount and one above is a premium. The right price depends on the characteristics of the assets, the remaining term, the unpaid commitments and market conditions. Reported values are estimates, so due diligence on the underlying assets matters.
What are the risks?
Risks include overpaying, incomplete information, remaining capital calls and limited exit options.
A buyer may take on unfunded commitments. Information from the seller or manager may be limited or out of date. Approval from the fund manager is often needed to transfer an interest, and the process can be slow.
Frequently asked questions
Why would someone sell a private fund stake?
To raise cash, rebalance a portfolio, meet regulatory or internal limits, or exit a long-dated position.
Are secondaries less risky than new funds?
They can give more visibility on the assets, but they still carry valuation, liquidity and manager risks.
What is a continuation vehicle?
A new structure that holds one or more assets taken from an existing fund, often to give the manager more time.
Can I buy a secondary easily?
Not usually. Transfers need documents, checks and often consent from the manager.
This article is general information for eligible investors. It is not investment advice or an offer. Capital is at risk. See our Terms and Risk warning.
