Secondary investment opportunities and solutions
Why investors consider secondary investments
Secondary investment markets provide access to more mature opportunities in private markets, adding liquidity to a traditionally illiquid asset class. Secondary investments can provide an additional source of risk-adjusted returns, allowing you to invest more directly in underlying companies and expanding exposure to specific sectors or geographies.
In addition to risk-adjusted returns, secondary investments offer the potential for greater diversification, specificity and control over assets and exposures.
We can help you build secondary portfolios with a variety of strategies. These can include single and multi-asset general partner (GP) led deals, traditional limited partner (LP) led transactions, portfolio or structured deals, secondary directs and other niche opportunities. Below we outline four of the most common benefits.
Immediate exposure to private market assets via the secondary market can reduce the management fee (basis) and shorten the time period required for value creation efforts to materialise.
Depending on the sub-type of a secondary transaction, an interest might be acquired at a discount to the latest valuations. These elements allow secondary investors to minimise or eliminate the J-curve, with varying levels of mitigation depending on the exact sub-type and deal-specific characteristics.
Understanding secondary investments
Considerations for secondary investments
Accessing secondary transactions across all asset classes (including private equity credit, real estate, infrastructure and impact investing) requires established and strong relationships with market participants, including asset managers, intermediaries and limited partners (LPs).
In secondary transactions, market participants look to investors that are considered trusted and credible partners. These partners can demonstrate the ability to supply the level of capital at the right time, quickly and efficiently, particularly when time schedules are tight.
Investors need up-to-date information on private market asset managers and funds, underlying portfolio companies and assets. They also need specific market data on comparable transactions, public company valuations and sector activity.
As many asset managers now cover multi-private asset classes, with underlying assets that can be interrelated to more than one sub-asset class, it’s important to understand how each works with the other. The ability to quickly disseminate relevant information for a secondary transaction is important.
A secure, agile technology system and sufficient resources are required to store and handle all the data so that the dedicated secondary investment specialists are able to access and process the information efficiently.
Secondary transactions have a high interdependency with a corresponding primary fund and its manager. You'll need a dedicated resource that can interact regularly with participants, conduct due diligence and represent you at the advisory board when required.
Secondary investment specialists need to be integrated within a broader transaction team that also covers co-investments. This allows the team to leverage the full spectrum of corporate finance expertise and complements the secondary investment team’s structuring skills.
Secondary transactions require established and consistent processes, including commercial review, investment decision-making, robust risk management, legal review and tax due diligence.
These processes are particularly relevant as secondary deals come in a variety of different structures and mechanics. Understanding the features and knowing how to manage them from commercial, risk, legal and tax perspectives are crucial to ensuring the success of your investments.
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