Limited partners don’t always feel as if they have enough time or resources to evaluate GP-led secondary processes, and in general they feel that private equity is taking up more of their bandwidth, a survey by Coller Capital shows.
GP-led secondaries are an increasingly mainstream part of the PE market, with two-thirds of North American LPs and three-quarters of European LPs reporting that they have experienced one or more GP-led secondaries processes in their portfolios. Almost half of LPs expect time and resource constraints to cause headaches in future GP-led secondary transactions, according to Coller Capital’s Summer 2019 Private Equity Barometer.
GPs are beginning to explore potential secondary transactions earlier on with their existing investors, in part out of respect for concerns over time constraints, according to Eric Foran, a partner with Coller Capital. While a GP may believe that 20 business days is an appropriate amount of time for an investor to receive notification and review a fund restructuring, that can cause difficulty for bandwidth-constrained LPs.
“An LP needs to digest a lot of information, and then potentially re-underwrite a new investment if there is a rollover or reinvest option,” Foran said. “If they’re learning about the transaction for the first time at the start of a 20-day period, then that is a lot of work to process.”
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