GP-Led Secondary Fund Restructings: Considerations for General and Limited Partners

General Partner (GP)-led processes to restructure fund portfolios are not a new phenomenon; Limited Partners (LPs) are familiar with such transactions in an end of life or key person context. In recent years however, as the secondaries market has flourished, the profile of such transactions has evolved. No longer solely the domain of challenged franchises or so-called “zombie funds”, GP-led secondary fund restructuring transactions are becoming more common in the private equity industry, and more oriented towards solutions, such as providing liquidity for Limited Partners or securing a pre-emptive extension of the fund term to maximize value of a fund’s assets.

While the stigma associated with such deals has diminished, their increasing prevalence raises questions for many LPs. Such transactions require the Limited Partner’s full attention, but the timing of the process is often difficult to predict and is therefore potentially disruptive for LPs, particularly when multiple deals overlap. The structure of these transactions can also be highly bespoke, making evaluating the impact of an election to buy, sell or hold challenging. These transactions can also present conflicts of interest, particularly where the benefits are believed to accrue chiefly to parties other than the current Limited Partners. Finally, as few Limited Partner Agreements (LPAs) were drafted to contemplate such transactions, the quality of transparency and level of Limited Partner engagement may not be directed by the contract, and therefore can vary meaningfully.

Given the highly unique nature of these transactions and broad range in the scope of deals, ILPA’s Guidance on the GP-led process may not be universally appropriate or applicable to every circumstance. Rather, it is intended to provide general parameters for well-run General Partner-led processes that will encourage productive dialogue and foster more informed decision-making by Limited Partners.