Insights and Analysis

Secondary portfolio sales: a guide to pension funds selling fund interests

19 May 2021

Despite a reduction in volume of secondary sales of fund interests in 2020, we are beginning to see an uptick in the volume of fund interest portfolio sales and it is likely that many investors, including pension funds, will look to manage their portfolio of fund interests over the remaining period of 2021 as the market recovers.

In its most traditional form, a secondary transaction is the transfer of interests in private funds from an investor in the fund to a third party buyer (this construct being known as an ‘indirect secondary’). Indirect secondaries can involve the sale of a single interest in a fund, or a portfolio of interests held across several different funds. ‘Direct secondaries’ involve the transfer of interests held directly in the companies which sit below the fund. Over the years, new structures and creative solutions have emerged such that secondaries now come in various shapes and sizes. “GP-led” transactions are increasingly popular (see below), as are stapled secondaries (where the buyer also makes a primary commitment to a new fund being raised by the manager of the fund in which interests are being sold).

Secondaries offer pension funds an opportunity to assess and rebalance their portfolios (for example, if they are over-committed), to generate liquidity, and to manage their cash flow.

This article covers the key stages that pension funds will need to consider when they undertake an auction sale of fund interests, so they are in the best position to take advantage of the market re-opening and pricing improving.