Secondary transactions are no longer niche, they’re a core part of private markets. But while the strategic rationale often gets the spotlight, the operational lift behind these deals is substantial. Whether you’re managing a GP-led restructuring or facilitating an LP-led transfer, the execution details matter. Below, we break down best practices for both scenarios.
Why Operationalization Matters
Secondary deals involve complex data, legal documentation, and reporting requirements. Missteps can lead to delays, compliance risks, and strained investor relationships. The following sections outline practical steps for each type of transaction.
GP-Led Secondaries: Operational Best Practices
GP-led transactions, such as continuation funds or tender offers, require coordination across multiple stakeholders and entities. Here’s what to focus on:
1. Tracking Cost Basis and Vintage Attribution
Entity-Level Complexity: Continuation funds often involve rolling assets from an existing fund into a new vehicle. Ensure accurate cost basis transfer for each portfolio company.
Vintage Year Attribution: Confirm how performance metrics (IRR, MOIC) will be reported across old and new structures. Align with governing documents and investor agreements.
Best Practice: Use integrated systems to reconcile historical data before closing.
2. Transfer Processes and Documentation
Investor Elections: Tender offers require clear communication and tracking of investor choices.
Legal Documentation: Assignments, joinders, and new subscription agreements must be executed precisely.
Operational Tip: Maintain a master checklist for each investor group to avoid missed steps.
3. Valuation and Audit Considerations
Valuation Timing: GP-led deals often hinge on interim valuations. Ensure methodologies are consistent and documented.
Audit Coordination: Notify auditors early about restructuring to avoid year-end surprises.
Best Practice: Keep a valuation memo detailing assumptions and adjustments.
4. Reporting to LPs and Regulators
Investor Reporting: Provide clear breakdowns of rolled positions, new commitments, and any liquidity options exercised.
Regulatory Filings: Continuation funds may trigger additional Form PF or AIFMD disclosures.
Operational Tip: Integrate reporting workflows with transfer data to maintain accuracy.
LP-Led Secondaries: Operational Best Practices
LP-led transfers are more straightforward but still require precision to protect compliance and investor trust.
1. Tracking Cost Basis and Vintage Attribution
Capital Account Accuracy: Update cost basis and allocation of income, expenses, and distributions promptly.
Vintage Year Impact: Confirm how transfers affect fund-level performance metrics.
Best Practice: Automate reconciliation to prevent manual errors.
2. Transfer Processes and Documentation
Consent Management: Most LPAs require GP approval for transfers, track timelines carefully.
Legal Agreements: Execute assignments and update side letters where applicable.
Operational Tip: Use standardized templates to reduce variability and speed up execution.
3. Valuation and Audit Considerations
Pricing Alignment: Ensure transfer pricing reflects the latest NAV and complies with fund policy.
Audit Impact: Communicate transfer activity to auditors early.
Best Practice: Document rationale for any valuation adjustments.
4. Reporting to LPs and Regulators
Capital Account Updates: Reflect transfers in investor statements without delay.
Regulatory Filings: LP transfers may require updates to beneficial ownership records.
Operational Tip: Build transfer data into standard reporting cycles to avoid duplication.
Cross-Cutting Best Practices for CFOs and Fund Administrators
Centralized Data Management: Avoid fragmented spreadsheets, use platforms that consolidate investor, transaction, and valuation data.
Clear Governance: Define roles for legal, finance, and operations teams to prevent bottlenecks.
Proactive Communication: Engage LPs, auditors, and legal counsel early to set expectations and timelines.
Bottom Line: GP-led and LP-led secondaries differ in complexity, but both demand operational rigor. Fund managers who invest in robust processes and technology will minimize risk and deliver a smoother experience for investors.