Disruptive Forces in Investing

Episode: GP Led Secondaries: What's Next?
Host: Anu Rajakumar (A), Neuberger Berman
Guest: Philip Puchkowski (B), Managing Director, Private Equity Secondaries Team, Neuberger Berman
Release Date: July 1, 2025

Episode Overview

In this episode of Disruptive Forces in Investing, host Anu Rajakumar welcomes back Philip Puchkowski to demystify the world of private equity secondaries, focusing on the evolution and future of GP led transactions. The discussion addresses why secondaries are gaining prominence, how pricing is shifting, what investors should watch for, and how liquidity challenges are shaping the broader private equity market.

Key Discussion Points & Insights

1. What are Secondaries and Their Role in Private Equity?

[01:04–02:03]

• Definition & Mechanism:

  • Secondaries allow limited partners (LPs) to sell their private equity fund positions for liquidity.
  • General partners (GPs) can sell specific assets to "continuation funds," offering liquidity and return potential to both existing LPs and secondary buyers.

• Market Role:

  • Secondaries serve as a tool for liquidity and portfolio management in an illiquid asset class.
  • Becoming mainstream as the market matures and investor needs evolve.

Quote:
“Private equity secondaries are generally believed to be lower risk, that's shorter duration, lower valuations, reduced leverage and reduced execution risk in the underlying portfolios.”
— Philip Puchkowski, [02:11]

2. Trends Behind the Secondary Market's Growth

[02:39–03:45]

• Long-Term Drivers:

  • Growth of Asset Class: Overall private equity has expanded over the past decade and a half, fueling the secondary market.
  • Active LP Management: LPs are more proactive in using secondaries for portfolio balancing, but penetrations remains below 2% (hence, room for growth).
  • Rise of GP Led Transactions: Barely present in 2011, but now GP led deals make up about half the secondary market.

• Cyclicality Misconception:

  • Despite headlines, secondaries are driven by structural shifts, not just market cycles.

3. Cyclical Pressures and Investor Opportunity Set

[03:51–04:37]

• Recently, exit activity and distributions are at their lowest since the Global Financial Crisis.
• LPs are under pressure to generate liquidity, positioning the secondary market as a vital outlet.

Quote:
“The percentage of distributions as a percentage of NAV... at the beginning of 2024 and 2023... has been hovering around 12, 13%. That's less than half of the 10 year average and the lowest value since the global financial crisis of 2008 and 9.”
— Philip Puchkowski, [03:54]

4. Secondaries Beyond the Cycle – Structural Growth

[04:46–05:27]

• Even if distributions normalize, secondaries will continue to grow due to continued investment activity and muted net cash flow improvements.
• Opportunities in secondaries persist beyond short-term market turmoil.

5. Deal Pricing and Valuation Trends

[05:27–07:12]

• Historical Pricing:
  • Discounts have narrowed compared to 2022–2023 (now at ~5% over NAV vs. 10–20%).
  • Larger, diversified portfolios command higher prices due to buyer demand and leverage dynamics.
  • Portfolios being sold are younger, offering more runway for value creation.
  • LPs get more strategic—targeting specific liquidity outcomes, not just selling entire positions.

Quote:
“At the moment we're looking at average high bids of mid single digits, just over 5%. That is an attractive value in the context of the last decade.”
— Philip Puchkowski, [05:40]

6. Current and Forward-Looking Pricing Dynamics

[07:57–09:14]

• Fundraising Lag:
  • Dry powder (capital ready to deploy) is lagging transaction volume (1.4x vs. historic 2x).
  • The market is undercapitalized, which creates buyer-friendly conditions and compelling opportunities, particularly in targeted GP led deals.

7. Deep Dive into GP Led Transactions ("Continuation Funds")

[09:14–11:10]

• What is a GP Led Transaction?

  • GPs sell select assets into a new fund, giving current LPs the option to cash out or roll into the new vehicle.
  • Secondary investors provide new capital.
  • Now accounts for ~15% of all distributions—up from just 2% in 2019.

• Growth Barriers:

  • Lack of financial and human capital is limiting faster expansion.
  • Many teams are new, with short track records, making capital allocation a challenge.

Quote:
“What has held it back for more growth is a lack of capital, both financial capital and human capital...it's difficult for investors to allocate capital to what is still a very new subsegment of private equity.”
— Philip Puchkowski, [10:33]

8. Risk and Reward: Secondaries vs Traditional Funds

[11:10–12:37]

• Risk Profile:
  • Secondary deals benefit from hindsight.
  • Early-stage operational failures can be bypassed—most unsuccessful transactions fail within 18–24 months.
  • Acquired companies tend to have stronger, delevered capital, and are closer to exit (shorter duration).

Quote:
“The benefit of secondary investing... is the benefit of hindsight... a big level of operational risk that can be eliminated on the secondary side.”
— Philip Puchkowski, [11:35]

9. Opportunity in Volatility: Capitalizing on Today’s Market Environment

[12:37–13:32]

• Volatility as a Catalyst:
  • Turbulent times lead to increased secondary market activity, albeit with a time lag.
  • The current challenging environment is likely to accelerate secondary transaction flow.

Quote:
“Times of volatility have always been a catalyst for additional activity in the secondary market... I'm actually very positive about the future need for secondary investors to provide liquidity into the private equity asset class as a whole.”
— Philip Puchkowski, [13:00]

Notable Quotes & Memorable Moments

• “In a continuation fund transaction, a GP sells one or more portfolio companies into a new vehicle that they set up and continue to manage going forward.”
  — Philip Puchkowski, [09:38]

• “Pricing for diversified portfolios is really driving the majority of that uplift.”
  — Philip Puchkowski, [07:13]

Practical Takeaways for Investors

• Secondaries allow tactical liquidity while potentially reducing risk compared to traditional funds.
• Pricing is favorable, but strategic selection and risk analysis are key, especially in GP led transactions.
• The market’s structural growth will likely continue, independent of the PE cycle.
• Volatility often creates entry points for disciplined, sophisticated investors.
• Watch for the maturing of GP led markets as more capital and track records develop.

Noteworthy Light Moment

• Food Fun:
  • When asked what dish he always goes for seconds on, Philip replied:
    “The one thing that I like to cook also for my children, my three children, is pancakes… European crepe style.” ([13:49])

Resources Mentioned

• White Paper: “Navigating Secondary Growth Opportunities beyond the Horizon” available on Neuberger Berman’s website.

Key Timestamps

• 01:04 — What are secondaries?
• 02:39 — Market growth drivers
• 03:51 — Illiquidity and distribution drought effects
• 05:27 — Evolution of deal pricing
• 07:57 — Dry powder and market capitalization
• 09:14 — GP led transactions explained
• 11:10 — Risks vs. traditional funds
• 12:37 — Volatility driving opportunity
• 13:49 — Light-hearted food question

This episode provides a thorough, clear-headed analysis of the private equity secondaries landscape, with actionable insights for investors seeking to navigate this growing and evolving space.