GP Led Secondaries: What's next?

Summary

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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

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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.

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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]

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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.

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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]

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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.

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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]

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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.

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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]

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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]

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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]

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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]

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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.

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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])

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Resources Mentioned

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

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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

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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.

Transcript

[A]

It's been a challenging environment for private equity investors as reduced exit activity, diminished distributions and a generally tougher fundraising environment have constrained liquidity among private equity sponsors and their limited partners. Hence the rise of the private equity secondary market. In a common secondaries transaction, a sponsor sells specific portfolio assets to a secondary fund, in turn providing liquidity for primary fund LPs while generating potentially attractive long term returns for secondary investors. But why are they gaining traction in today's private equity ecosystem? How can investors navigate the complexities of GP LED transactions, assess pricing distortions and identify opportunities while managing risks? My name is Anu Rajakumar and to answer those questions and more, I'm pleased to welcome back to the show to Philip Puchkowski, Managing Director of Neuberger Berman's private equity secondaries team. Philip, welcome back to Disruptive Forces.

[B]

Great to be back.

[A]

So Philip, to kick things off, explain what are secondaries and what role do they play in the private equity ecosystem?

[B]

When you think about private equity, it is an inherently illiquid asset class. Let me explain what I mean by that. So to do that, let me explain also a few terms that I'm going to use in today's episode. In private equity we have limited partners or the LPs that commit capital to private equity funds and those are managed by general partners or the GPs, the private equity firms, the limited partners have the option to sell their private equity funds into the secondary market to create additional liquidity from their private equity portfolios. But also what we're seeing is that the general partners have the ability to sell select underlying investment companies into so called continuation funds which are capitalized by self secondary buyers to create liquidity that they then can distribute up to their investors.

[A]

Great. And how would you fit that into the broader private equity landscape? Like what is appealing about secondaries compared to other areas of private equity?

[B]

So 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.

[A]

Terrific. And now we've really seen the secondary market in private equity take off in recent years. So Philip, what would you say is behind this growth? Are there any particular market trends or pressures that are driving more sponsors and investors to consider these types of deals?

[B]

So the secondary market has been very prominent in the financial press over the last few years and it does give the impression that the secondary market is cyclical, but it is not. There are a number of long term trends that are driving the growth in the secondary market. Number one is of course the Growth of the overall asset class, which has been shown tremendous growth over the last one and a half decades. And the secondary market as a deviation of that, has been benefiting from that growth of the addressable market. Number two is that LPs. So the investors have become a lot more active in selling their private equity positions through the secondary market to manage their portfolios. That percentage is still below 2%. It's hovering around 1.5 to 1.75%. If that goes up to 2%, 2.5%, there's a tremendous growth opportunity for the secondary market market. And then the third long term trend is the emergence of the GP LED market, which in 2011 barely existed and now represents about half of the overall secondary market.

[A]

All right, so Philip, does that mean that there's not a temporal pressure in the market right now? How do you think about the opportunity set here?

[B]

Yeah, so there is of course an accelerator as well on top of that long term growth trend. And that's really driven by the lack of distributions that we're seeing in private equity at the moment. And it's really when we look at the percentage of distributions as a percentage of the NAV at the beginning of the period in 2024 and 2023, it's 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. So what that means is that investors don't generate the liquidity that they need to generate to fund the capital calls from their underlying private equity portfolios. And it's putting a lot of pressure on the LPs to generate additional liquidity. And the answer, the secondary market.

[A]

And so now if exit activity does indeed pick up again and we go back to more normalized distributions, what happens secondaries in that situation?

[B]

I think it will continue to grow. And I think one element that is interesting is that a lot of people think, oh, when distributions come back, everything's fine again and the whole portfolio has turned cash flow positive again. I think that's probably true. But also I think in an environment where exit activity normalizes, investment activity will also normalize. And as, as a result, the impact on the net cash flows, the LP's experience will be much more muted. In other words, the positive effect of the distributions will be much less felt by LPs than currently anticipated. And that then of course continues to create opportunities in the secondary market above the mean trend.

[A]

Yeah, sure, absolutely. Well, maybe actually with that in mind, let's talk about Pricing for a moment, how have you seen valuations and deal pricing in the secondary market really evolve over the last few years?

[B]

Yeah, it's been. Pricing on the secondary market has been fluctuating, I should say quite a bit. 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. If you look at the average, it's been hovering. It's certainly around that level. At the same time, if you go back to the late 2022, early 2023, those discounts have been more 10 to 20% for similar portfolios. So a lot more attractive than it. But what we're also seeing is that you need to dissect a little bit why the pricing has gone up relative to nav. And I think it's interesting, there are a few trends here. Number one is that the pricing for diversified portfolios is really driving the majority of that uplift, in our view. But also sellers are looking at much younger funds they're currently selling in the market. So funds that have much more leeway for future value creation and as a result can demand higher pricing as well. But also then as a third theme, LPs are taking a more sophisticated or different approach, I should say, to creating liquidity. So they may offer a portfolio of $1 billion of NAV with the goal of only generating $400 million of liquidity. So they will then go through all the bids that they receive on that portfolio to optimize the pricing relative to their own goals, which typically is the narrowing of the headline discount.

[A]

Now let me ask about that first one that you mentioned. You said there are more diversified portfolios. The pricing is really driving the uplift. Can you explain what do you mean by that?

[B]

Yeah, it appears that at the moment there is a premium for larger diversified LP portfolios in the market. It appears to be driven by a number of buyers that are active in this space. And the diversification allows for the use of transaction level leverage, which can then be used to pay higher pricing, but certainly also is changing very much the risk and the cash flow profile of these investments.

[A]

Okay, thank you. That's interesting. You know, staying on the topic of pricing, I'm actually now curious as a follow up, what's your outlook on pricing trends going forward and how should investors be thinking about value in this environment?

[B]

Yeah, to think about that question, I think it's important to also touch on the fundraising and the secondary market overall. And what we've seen is that the fundraising has been lagging behind the growth of the transaction volume. So when you divide the dry powder, so the capital available for new investments by the transaction volume of the prior year, that's a multiple that's been going down. So at the moment it stands at around 1.4 times. And that compares to historical levels which are more hovering around the two times of dry powder to transaction volume. So the market is under capitalized. What that means is that there is an attractive opportunity set here for buyers and I think for buyers that are having a targeted approach to isolation interesting assets from broader portfolios and avoiding a little bit the more competitive environment that I just referenced before that's on the LP side. I think on the GP LED side, that undercapitalization is even more acute because the majority of the dry powder is currently allocated or earmarked for the LP market. That means the factor of dry powder to transaction volume on the LP side is much lower. And we are seeing that in most of the transactions we're doing that. There seems to be a very attractive investment environment at the moment.

[A]

Okay, well that's actually a great segue to my next question, which is about GP led deals like continuation funds. They've garnered a lot of attention lately. So two part question for you, Philip. First, just explain what a GP led transaction is or how a continuation fund works. And then second part of my question is going to be about what's holding back this part of the market from even further growth.

[B]

Yeah. So to address your first question, what it is. So 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. That allows the GP to participate in that future evolution of the asset. Existing investors in the fund have the option to either take the cash from the purchase price or to roll their commitment into the new fund and participate in the future evolution of that asset. These transactions are capitalized by secondary investors. Currently they are representing just shy of 15% of all the distributions that are coming out of private equity funds is 15.

[A]

Where. How does that stack up to historical levels?

[B]

Yeah, so this is the highest number it's been. And to be fair, it's also on a relatively low number of distributions overall. But when we go back to 2019, that number was maybe 2%, maybe it was a little bit higher, a little bit lower. But it's been really on a rising theme here, which sort of I guess addresses then the second part of your question. So what is holding back the additional growth? I think it's Been growing a lot. What has held it back for more growth is a lack of capital, both financial capital and human capital. A lot of teams are being currently founded, but it's difficult for investors to allocate capital to what is still a very new subsegment of private equity. And especially if a lot of those teams are still very new and don't have a proven track record.

[A]

Sure thing. Well, that takes me to the next question, which is about risks, which I think is something maybe you can address here. Thinking about what you just said, a relatively newer market, but in general, what should investors be mindful of when they are looking at the secondary market, including GP LED deals, and how does that risk and reward stack up compared to more traditional drawdown style private equity funds?

[B]

Yeah, I think the secondaries are a lower risk entry into what is a high risk asset class private equity. The benefit of secondary investing, both on the LP side and also on the GP LED side, is the benefit of hindsight. Which means that when secondary investors are looking at the portfolios they acquire, whether through the LP transactions or through the GP LED transactions, they will have a trajectory the GP is on with these assets. And what is sort of one of the hidden secrets of private equity is that most transactions that don't go well do so within the first 18 to 24 months of ownership. Right. So that's a big level of operational risk that can be eliminated on the secondary side. In addition to that, of course, businesses typically have had the time to grow earnings and delever their capital structure. So meaning lower capital structure risk, but also because they're more mature assets, they might be closer to an exit, which would mean shorter duration and a quicker de risking of the investments.

[A]

Now bring this all back to the context of an uncertain and somewhat volatile macro environment. Do you think that it actually creates more opportunities in the secondary space? In other words, how can disciplined investors turn today's challenges like motivated sellers and shifting valuations into potentially attractive investments?

[B]

Historically, times of volatility have always been a catalyst for additional activity in the secondary market, with a bit of a lag behind it, mainly because they led to lower exit activities as well. Now we're seeing sort of a perfect storm, as it were, on that side of the equation. So my perspective, I'm actually very positive about the future need for secondary investors to provide liquidity into the private equity asset class as a whole.

[A]

Terrific. Well, Philip, thank you very much for all of those comments today. Lots of great content that we've generated from this episode. I can't let you go without a quick bonus question. I would love to know what is a food or a dish that you always go for seconds on?

[B]

That is a good question. So I like to cook at home and the one thing that I like to cook also for my children, my three children, is pancakes.

[A]

Okay. Not American style though I imagine.

[B]

European crepe style. And that is one dish that I also enjoy very much myself.

[A]

Do you have any favorite fillings that you particularly enjoy to eat?

[B]

They come in all sorts of fillings depending on the weather outside.

[A]

I was gonna say sweet or savoury.

[B]

Mainly sweet.

[A]

Very, very good. Well, Philip, thank you for sharing that and for your insights on the world of private equity secondaries today. You talked about the evolution of GP LED transactions, the changing pricing dynamics. You talk the future growth and if exit activity does indeed pick up, all of these shaping a market that's not just a temporary solution, but really a core part of private equity's future. Thank you very much for being on the show and for sharing those thoughts with us today.

[B]

Thank you for having me. And for information, we have a white paper that we publish on our webpage where a lot of these thoughts are elaborated in lots of depth as well.

[A]

Yeah, and for those who are interested in that paper, it's called Navigating Secondary Growth Opportunities beyond the Horizon. Philip, thank you again for being here.

[B]

No, it was great. Great to be here. Thank you.

[A]

And to our listeners. If you've enjoyed what you've heard today on Disruptive Forces, you can subscribe to the show from wherever you listen to your podcasts or you can visit our [e-mail] disruptiveforces where you can find previous episodes as well as more information about our firm and offerings.

[C]

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