I had the privilege of participating in an engaging Practising Law Institute (PLI) panel discussion yesterday on 'GP-Led Secondaries: What they are, how they work and why they’re not going away’. Many thanks to my fellow panelists, Evert Vink, James Lee and Joe Ehrlich for sharing their valuable insights.
My high level takeaways from the discussion are:
- GP-led fund restructurings are now widely accepted by the industry, joining sales and IPOs on the menu of exit options.
- The dramatic growth in GP-led transaction volume – from roughly $10 billion in 2016 to over $56 billion in 2022 – has been driven by the maturation of the asset class, with an increasing number of funds coming to the end of their life, a need by some sponsors to raise follow-on capital when funds are ‘tapped out’ and a desire to generate liquidity (which has been heightened by the recent mismatch between the pace of capital deployment and fundraising as compared with slower exit activity).
- A common point of tension in the negotiation of a GP-led deal is the question of what will be the buyer’s protection in the event of a breach by the selling fund of its representations or covenants and rep and warranty insurance may serve as a useful tool for bridging that gap in some deals.