Secondary Market

Industry Definitions

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Explore definitions specific to the secondary market within alternatives.

General terms

Contribution	The total call-up obligations the LP has met since the fund’s inception.
Delinquency	Non-payment of a drawdown when due.
Direct Secondary	The sale of an interest in a direct private equity investment or a portfolio of direct private equity investments to a new third-party investor. The buyer either manages the investment/portfolio or appoints a manager, typically a direct secondaries manager, to do so.
Early Secondaries	Secondary market transactions involving the transfer of LP interests in funds that are less well funded. Early secondaries are also referred to as ‘secondary-lite’ transactions.
Earn-out Clause	See fund terms & conditions.
Net Asset Value (NAV)	The total value of a fund’s portfolio less liabilities. The NAV of LP interest is valued on the LPs contribution to its commitment.
Partial Sale	Secondary market transaction where the seller retains a proportion of its original interest in a fund.
Secondaries Fund	A private capital fund raised by secondary fund of funds managers, which acquires LP interests in private capital funds from the original investors.
Secondary Co-Investment	The direct investment of a secondary market buyer alongside the GP of the fund in which it has acquired an LP interest.
Secondary Fund of Funds Manager	An investment specialist whose main business is the management of secondaries funds, which acquire LP interests in private capital funds.
Secondary Market Intermediary	A third-party that facilitates a deal between buyers and sellers of fund interests. In order to accurately assess the value of an offering, the intermediary undertakes extensive due diligence of the underlying assets held by the funds in which interests are to be sold. The intermediary sources potential buyers of the offering and tailors the structure of the transaction to the needs of both parties.
Stapled Secondary	A secondary transaction where the buyer of the LP interest agrees to commit fresh, primary capital to a new fund being raised by the GP of the fund in which the interest was purchased.
Structured Sale	Enables distressed LPs to finance their drawdown obligations, while retaining ties with their fund managers. The LP contributes its fund interests to a joint venture, co-owned by a counter-party, which contributes cash to the joint venture and finances 100% of future capital calls. The LP and the counter-party each receive 50% of the future distributions generated by the joint venture, providing the counter-party first receives an agreed-upon return on their contribution.
Synthetic Secondaries	Investment by third-party investors in a new limited partnership formed specifically for the acquisition of an entire portfolio of direct investments from a parent company or private capital firm. The existing management team can be retained or new management can be brought in to manage the portfolio.
Tail-End Secondaries	When an LP purchases a stake in a vehicle that is approaching, or has exceeded, its anticipated lifespan.
Treasury Regulation 1.7704	Tax rule that limits the annual transfer limit for US limited partnerships to 2%. Exceeding this limit can result in the fund losing its private status, which would subject it to higher taxation. The threshold can be raised to 10% provided a qualified matching service is employed to transact the transfer.
Unfunded Commitments	Total commitment less contributions to date. The unfunded commitment is the remaining capital the LP is obliged to pay to the GP of the fund for future investments.
Vendor	A term for the seller of fund interests.

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