GP-Led Secondaries: A Strategic Liquidity Tool for Asian Private Equity

GP-Led Secondaries: Strategic Liquidity Solutions for Asian Private Equity

The first half of 2022 has presented a challenging environment for private equity exits in Asia. Volatile public markets have made IPOs a difficult proposition, and strategic buyers are taking longer to move. In this context, the GP-led secondary transaction — and specifically the continuation vehicle — has emerged as a pragmatic and increasingly popular solution for GPs who believe in the long term value of their portfolio companies but need to provide liquidity to their existing LPs.

How Continuation Vehicles Work: Structure and Benefits

A continuation vehicle allows a GP to transfer one or more high performing assets from an older fund into a new vehicle, typically with a longer investment horizon. Existing LPs are given the choice to roll their interest into the new vehicle or take cash at the current valuation. New investors, often specialist secondary funds, provide the liquidity for those who choose to exit. The result is a clean separation of the asset from the original fund structure, allowing the GP to continue to create value without the pressure of an imminent fund wind-down.

Valuation and Independent Advisory in GP-Led Transactions

However, these transactions are not without complexity. Valuation remains the most critical hurdle. Ensuring that the price at which the asset is transferred is fair to both the rolling LPs and the new investors requires independent oversight and a robust process. The role of an independent advisor — one who can provide credible valuation analysis and manage the LP consent process — is therefore essential to the integrity of the transaction.

The Maturing Asian Secondaries Market

At Lensbridge, we believe the growth of the secondary market is a sign of a maturing ecosystem. As more GPs in the region gain experience with these structures, and as more LPs become familiar with the nuances of evaluating a continuation vehicle, the market will become more efficient and more liquid. For now, the complexity premium remains, and for advisors with the right expertise, it represents a significant opportunity to add value.