Chapter 12

Secondaries Liquidity

Secondaries & Continuation Funds

Secondary Market 101: Growth, drivers, why LPs care
EM Implications: Continuation funds, GP-led secondaries, fund wind-down strategy

Raising a first or second fund in 2025 means answering one new, unavoidable question: “What’s your continuation or secondary plan if exits slip?” Secondaries are no longer niche; volumes hit record levels in 2024 and stayed hot into 2025, so LPs now expect emerging managers to show a clear, governance-sound path to liquidity that doesn’t rely on frothy IPO windows. This guide gives you the practical language, artifacts, and decision trees to pass that test, what a continuation fund is (and isn’t), how GP-leds are run, where conflicts and pricing get scrutinized, and the boring but critical wind-down options your diligence will probe. You don’t need to run a secondary in Fund I, but you do need a one-page policy, two slides, and an ILPA-aligned playbook that protects DPI and signals institutional readiness.

The Secondary Market Boom

Record activity is reshaping LP expectations

Global secondaries set fresh records in 2024, with reputable trackers reporting $156B–$162B of closed volume across LP- and GP-led deals (UBS at $156B; Jefferies at $162B). The pace accelerated again in H1-2025, when Jefferies logged ~$103B and Evercore ~$102B, the largest half-year ever, prompting several houses to pencil in ~$180B for full-year 2025 if momentum holds. That backdrop is why LPs now open diligence with, “What’s your continuation/secondary plan if exits slip?”

What’s powering the surge

The drivers are structural, not transitory: extended hold periods as IPO/M&A windows remain uneven; LP liquidity and rebalancing needs, the denominator effect McKinsey highlighted as distributions slowed; and manager transitions and duration mismatches that make GP-led tools attractive for high-conviction assets. Together they’ve lifted both LP-led portfolio sales and GP-led continuation vehicles, broadening supply while a deep bench of specialized buyers and intermediaries sustains demand.

What that means for your Fund I/II materials

You don’t need to run a secondary today, but you do need a written policy that shows you understand the menu of options and the governance that surrounds them. The Institutional Limited Partners Association (ILPA) now publishes continuation-fund guidance that LPs, consultants, and ODD teams reference: run competitive processes, give clear sell-or-roll choice, obtain an independent fairness or valuation opinion, and disclose economics and conflicts with precision. Mirroring those headings in your policy reads as operational maturity.

A credible one-paragraph stance

“We target exits in Years 3-7. If a core asset needs more time, we will brief the LPAC, evaluate a GP-led continuation or direct secondary alongside extension options, run a competitive process with an independent fairness opinion, and offer legacy LPs a sell-or-roll election. We’ll disclose fees/carry at both vehicle levels and maintain a transparent timetable.” Tie that to a one-page Liquidity & Continuation Strategy in your data room so the answer is verifiable.

Secondary Market Participants

LPs selling stakes

The sell side is dominated by pensions, endowments, insurers, and other institutional allocators using LP-led sales to raise liquidity or rebalance after uneven distributions and allocation drift. 2024 set a record for LP stake sales, and press coverage through 2025 continues to frame secondaries as the default relief valve while exit markets normalize.

Secondary buyers

On the buy side, dedicated secondaries funds, for example, Lexington, Coller, Apollo and multi-strategy managers commit large, programmatic pools of capital to both LP portfolios and GP-led deals. Big managers and platforms publicly describe secondaries as a core liquidity engine for private markets, and 2024-2025 reviews show escalating dry powder and broader buyer participation.

GP-led restructurings

Sponsors use single-asset or multi-asset continuation funds to extend ownership of maturing “trophy” companies, giving legacy LPs a sell-or-roll election while bringing in new secondary capital. ILPA’s guidance lays out what a good process looks like, early LPAC engagement, comprehensive information packs, an independent fairness or valuation opinion, and transparent economics to manage conflicts.

Company-level secondaries

When IPOs/trade sales are slow, sponsors may transact at the company level, selling to another sponsor or into a CV, creating time and capital to finish the value-creation plan while providing liquidity to selling LPs. Advisory houses describe this as part of the same continuum: a tool to align asset duration with business needs rather than the original fund clock.

New entrants and specialist niches

The ecosystem keeps widening: investment banks scaling secondaries advisory benches, large asset managers formalizing GP-led and credit-secondaries sleeves, and data/providers that deepen buyer competition. This breadth is why well-run processes are clearing with more depth and, for quality assets, tighter discounts than in 2023. Expect LPs to ask which advisers you’d shortlist and which buyer cohorts you expect to engage for your strategy.

How to use this in your materials

Add one slide titled “Who we’d call and why” listing: adviser short-list for LP-led vs. GP-led, 8-12 likely buyers matched to your asset profile, and the sell-or-roll election mechanics you’d offer legacy LPs. This shows you know the map, and can run a credible process if needed.

Why specificity beats broadness

Specific mandates don’t reduce opportunity; they reduce noise. Constrained stage/geo/sub-themes elevate signal quality (better intros, higher first-meeting hit rates) and help LPs believe your fund math (ownership targets, reserve planning, loss ratios) is achievable. Institutional buyers repeatedly say they prefer focus they can diligence quickly over “optionality.” Support that preference with ILPA-style materials and reporting samples to demonstrate what your investors will receive after close.

Continuation Funds 101

What they are

A continuation fund is a new vehicle, backed by secondary buyers, that purchases one or more mature assets from your existing fund so you can keep compounding value without a forced sale at term-end. The selling fund runs a process, sets a reference price, and offers legacy LPs a sell-for-cash or roll-your-exposure election. CVs come in two flavors: single-asset and multi-asset. CV terms typically include a new 5-7 year life, follow-on reserves, and a governance package designed for a smaller, more focused portfolio.

When they appear

Classic timing is near fund end, but earlier use is now common when a core asset needs 24-36 more months to finish a value-creation plan with new product, regulatory milestone, add-on M&A, market windows are soft, or ownership concentration in the flagship fund has outgrown risk limits. Pre-emptive CVs also show up when an asset requires incremental capital that the original fund can’t provide without distorting reserves.

Why they’re used

A well-run CV aligns asset duration with the business plan, not the fund clock. It avoids fire-sale dynamics, preserves upside for LPs who choose to roll, and provides liquidity to LPs who need cash. For the GP, it can crystallize part of the economics while rolling a meaningful stake into the CV, keeping skin in the game through the next chapter. Done right, CVs improve DPI for sellers and TVPI/DPI visibility for rollers, while introducing fresh follow-on capital to finish the plan.

Key process elements LPs look for

LP choice, clearly documented. A clean sell-or-roll election with 20-30 business-day windows and plain-English FAQs.
Independent price support. An independent fairness/valuation opinion on the transaction price and terms; many processes also run QoE or third-party market work.
Conflicts hygiene. A written conflicts memo, early LPAC briefings, and transparent disclosure of fees, carry, and any stapled commitments.
Competitive process. An adviser-run market check with a real buyer universe, not a bilateral.

Economics & alignment

Spell out whether carry in the selling fund crystallizes and how much the GP will roll. Define management fees in the CV, follow-on reserve sizing, and how transaction expenses are borne. If you contemplate a staple, explain size, pricing, and conflict mitigation.

GP-Led Secondaries (Restructuring)

What it is

In a GP-led secondary, your existing fund sells one or more assets to a newly formed continuation vehicle that you sponsor. Legacy LPs get a sell-for-cash or roll-your-exposure election; secondary buyers and sometimes co-investors provide the capital to buy the assets from the selling fund and to fund follow-ons. CVs are typically single-asset or concentrated multi-asset.

Why it happens

LPs want liquidity; you want to keep high-conviction companies through the next value-creation chapter. A GP-led lets you align asset duration with the business plan instead of the original fund’s end date, while offering legacy LPs a clean choice: cash now or continued upside.

Price and terms

Pricing is deal-specific. Survey data through 2024-H1’25 shows LP portfolio trades averaging roughly ~90% of NAV; GP-led pricing tightened meaningfully for high-quality single-asset processes as buyer competition increased. Expect a new 5-7 year term in the CV, explicit follow-on reserves, and economics that reflect a smaller, more focused portfolio, often lower base management fee on cost/NAV and carry with clear hurdles/escrows. Don’t quote fixed “market discounts”, anchor your answer to current surveys and deal quality.

Governance and conflicts

LPs judge GP-leds on process quality:

LPAC early: Brief the LPAC before launch on rationale, conflicts and proposed economics.
Independent price support: Obtain an independent fairness/valuation opinion at closing; many processes also include QoE and third-party market work.
Competitive market check: Mandate a reputable adviser, run a real buyer universe, and document outreach and bids.
Transparent economics: Disclose fees/carry at both fund and CV level, any stapled primary commitment to your next flagship, and GP rollover, many LPs prefer substantial rollover of crystallized carry.
Clear LP choice: A 20-30 business-day sell/roll election window with plain-English FAQs and illustrative scenarios.

Regulatory backdrop

The U.S. Private Fund Adviser Rules that would have mandated fairness opinions in adviser-led secondaries were vacated in June 2024. Market practice, however, did not roll back: LPs still expect an independent opinion, robust conflicts documentation, and a competitive process.

Execution timeline

Pre-flight (4-6 weeks): LPAC brief, conflicts memo, adviser RFP, model refresh/KPIs, preliminary buyer list.
Marketing (3-6 weeks): Dataroom, diligence Q&A, non-binding then binding bids.
Election (3-4 weeks): Deliver IM, opinion, election forms; LPs choose cash vs. roll.

Close & after: Sources/uses, fee mechanics, CV governance kickoff, 12-24-month value plan.

Relevance for emerging managers

You’re unlikely to run a GP-led in Fund I, but by Fund II LPs will expect you to be fluent: decision criteria, buyer universe, fairness opinions, GP rollover, fees, and communications. Put a one-page “GP-Led Process Framework” in your data room so diligence teams can see your policy before they ask.

Why This Matters for Emerging Managers

The question you will get: “What’s your strategy if a core position hasn’t exited by Year 8?”
The signal LPs want: A plan, not “we’ll see.” State your decision tree (extension → GP-led continuation with sell/roll choice → direct secondary → distribution-in-kind) and your commitment to independent opinions and LPAC engagement.
How to phrase it: “We’ll proactively evaluate continuation options with LPs if a mature asset needs more time; we’ll also assess LP- or direct-secondary alternatives based on market depth.”

What you don’t need: To promise you’ll do a continuation in Fund I. Having a policy is what matters.

Fund Wind-Down Strategy

Liquidation cascade

Write a clear “order of operations” for late-life assets and put it in your policies: request an extension under the LPA to define who votes, notice period, and the revised fee during extension, e.g., step-down to cost/NAV and carry pause or escrow; evaluate a GP-led continuation with sell/roll choice and an independent fairness opinion; run targeted secondary sales through an adviser; and as a last resort, make a distribution-in-kind.

For each step, state approval mechanics, timelines, and communications. Build this into a simple RACI so everyone knows who signs what, and when.

Distribution-in-kind

If you may distribute securities, pre-document the custody path, transfer restrictions, and information rights LPs retain. Include a DIK instruction letter template that explains settlement logistics, expected trading windows, and any issuer-level constraints. Commit to a post-DIK reporting cadence, so LPs can time their own exits. Clarify tax implications and issue a short valuation bridge at DIK date to avoid mismatched marks across LP books.

Holdco/extension mechanics

If you pursue a holdco or a 2–3 year extension, set expectations up front: governance, KPI cadence, budgeting, and fees. State exit triggers for revenue/gross margin thresholds, regulatory milestones, M&A pipeline and stop-loss conditions that will move you from holdco to GP-led/DIK if progress stalls.

Stress-testing

Model a tail scenario where ~30% of NAV requires three extra years. Show the impact on DPI, TVPI, and IRR under three pricing bands (par / -10% / -25%). Include fee drag under the proposed extension fee schedule, and illustrate liquidity options (selective asset sale vs. CV vs. DIK). Add a sensitivity table for execution timing. Present these in one page in the data room so LPs see you’ve pressure-tested the endgame, and have a disciplined plan to protect capital while avoiding forced sales.

The Emerging Manager Playbook

In your data room

Create a “Liquidity & Continuation Strategy” that a busy ODD team can scan in 90 seconds. Include:

Triggers: e.g., >8 years hold, stalled buyer process, capex need beyond reserves
Options: extension → GP-led CV with sell/roll choice → targeted LP sale → DIK
LP choice mechanics: 20–30 business-day election window, FAQs, sample election form
Conflicts memo outline: fees, carry, any staple, GP rollover
Independent fairness/valuation opinion commitment
Timeline: LPAC brief → adviser mandate → buyer process → opinion → elections → close.

Use ILPA-style headings so consultants can tick boxes quickly.

In due diligence

Have a mini-pack ready: sample election documents, a process Gantt, a buyer universe short-list, and two opinion providers pre-qualified. Include a one-page valuation bridge template and a post-close KPI plan so LPs see how you’ll manage the CV.

Follow-through

Log every liquidity question in your CRM; add clarifications to a VDR Q&A index so future LPs see consistent answers. After first close, include a quarterly ‘Exit Monitor’ in reporting samples. Consistency beats slogans, and wins committee votes.

Secondaries Market Outlook 2025–2026

Volumes likely stay elevated. The run-rate exiting mid-2025 suggests another blockbuster year: Jefferies logged ~$103B and Evercore ~$102B in H1-2025 alone, the largest half-year on record, after a $156B–$162B record in 2024. UBS’s Private Funds Group projects ~$180B for full-year 2025 if momentum persists, supported by ample dedicated dry powder and new entrants. Expect 2026 to remain high by historical standards as LP liquidity programs and GP-led tools stay mainstream.

Buyer terms: tighter alignment, deeper diligence. Advisory houses report buyer leverage shifting toward meaningful GP rollover, cleaner fee constructs, and granular KPI packs, especially in GP-leds. Lazard’s review highlights a growing budget share earmarked for GP-led transactions in 2025, which raises scrutiny on valuation bridges, conflicts, and the role of any stapled primary. Translation: premium assets clear with competitive pricing; weaker stories meet discount pressure.

Continuation vehicles are standard toolkit, not edge case. Jefferies’ 2025 reviews show GP-led activity (single-asset and concentrated multi-asset) at record levels alongside improving LP-portfolio pricing, cementing CVs as a core path to duration matching rather than a last resort. Even if you never run one, you’ll be evaluated on whether you can run a clean, ILPA-style process.

Implications for emerging managers. If you mention secondaries in your materials, arrive with receipts: a one-page policy, a buyer/adviser short-list, an example election timeline, and your valuation/fairness opinion stance. Expect committees to probe your unit economics, governance, and post-transaction value-creation plan just as hard as headline pricing. Anchoring language and artifacts to ILPA guidance and current market data helps clear diligence faster and reduces back-and-forth.

Table of Contents

Secondaries & Continuation Funds

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How to Fundraise Your First Fund in 2025

Defining Your Investment Thesis

LP Targeting: Family Offices to Fund-of-Funds

Building Your Sourcing Edge

Running Your Fundraising Process

Fund Structure: 506(b), AIFMD & ELTIF

First Close: Funnel & Metrics

US Marketing Rules & SEC Compliance

The Final Close Checklist

EU Fundraising Routes

LP Reporting & Communication

Building Your LP Data Room & DDQ

Secondaries & Continuation Funds