The new era of GP-led secondaries

Continuation funds. Love them or hate them, they're here to stay. Continuation vehicles or CVs, as they're known, are the most frequently used type of GP-led secondary's technology, a segment of the wider secondary's market that accounted for around half of the roughly 100 billion in deals in the first six months of this year. The expectation is for this part of the market to grow exponentially, as sponsors use CVs to hold onto assets and return cash back to LPs in a low DPI environment. But it isn't just low DPI that's fueling this market. There are a variety of dynamics at play, leading to the increasing use of CVs, as we find out in this special episode of secondary's investors' second thoughts. I am Adam Lay, a senior editor within PEI Group. Today, we are here to talk all about GP meds. This is a special episode sponsored by LGT Capital Partners, Davis Polk and Lexington Partners. And what better way to delve into this discussion than with three experts in the secondary's space? Brooke Joe, a partner and head of private equity APAC at LGT Capital Partners, Jeffrey Bloom, a partner on the secondary's team at Lexington, and Leo Lander, partner and head of investment management at Davis Polk. We started our discussions with introductions and guests recalling the first GP-led transactions they were involved in. Hi, everyone. My name is Brooke Joe. I'm with LGT Capital Partners, facing Hong Kong. The first GP-led that I was involved in when I joined in 2010 in Hong Kong was actually the spin-off of now known as the TPG new quest group. Back then, they were just a new quest. They spun off, I think, it closed in 2010, 2011, from Bank of America, Merrill Lynch as a separate team because of the banking rules back then. So that was the very first transaction that I worked on. Before then, I didn't know what a secondary was. My name is Jeffrey Bloom. I work at Lexington Partners. The first GP-led transaction I worked on as an associate was a, it wasn't called this at the time. It was a multi-asset CV. It was actually a fund restructuring for a fund that needed capital and time to address a number of assets that actually had underperformed. So you can see how the market's grown from there. Hopefully, we can talk about that today. Hey, everybody. This is Leo Lander. I'm the head of the funds in the secondary's practice at Davis, Polk. I've actually been working in secondaries since 2007 or 2008. We're approaching 20 years in secondaries. My first, what we would now call a GP-led was back in 2012, I think, where it was the spin-out of DLJ merchant banking business from Credit Swiss, which involved what we would now call an LP tender. But it was so early in the evolution that actually I remember sitting in a conference room. It was a bunch of lawyers from a bunch of different firms and someone said, "Hey, doesn't this look like a tender offer? Shouldn't we look at the tender offer rules?" Like, that's how, now they're known as LP tenderers. But back then, we were just figuring it out. And that was still, I think, to this day the single most complicated deal I've ever worked on. I want to start with a little bit of data. So there's some data from Green Hill, one of the advisors. And I was looking at this in preparation for our discussion at the truck me that, in 2015, so 10 years ago from today, GP-leds accounted for 18% of annual secondaries deal flow. At deal volume, sorry, over the years that has slowly crept up 24%, 32%, 44% up until 49% of deal volume in 2025. So accounting for almost half of the market. So that's a little bit of context. I guess I want to ask, what's been driving the growth of GP-leds over that period of time to the point where now we have an almost 50 billion dollar market? There's a number of things driving this growth and they're all happening together. The structural need for liquidity that just sits atop everything in the secondary market is what's driving both the growth and the need for LP-led liquidity and the need to drive DPI in sponsors private equity portfolios. There has been a significant amount of private equity capital that's been raised in the 2017 through 2025 time period. When you marry the significant amount of capital raised and subsequently deployed with a seismic change in a reset in distribution activity, what's left is a huge private equity overhang and the fact that in the last two or three years in LP's portfolios, there's been a dearth of liquidity coming back from people's private equity investments. So the number one overarching theme across everything in the secondary market today is just the structural need for liquidity. In part with that is in addition continued sponsor adoption. The sponsor community over time has recognized that they can tap into the secondary market to help facilitate portfolio management and driving DPI where it makes sense in their portfolios. Those two things have taken time to develop and the third, which is actually the laggard is by side capital formation. Capital formation takes time. It takes time to raise that capital and draw down fund structures and we can double click on that. But there's a lot of things going on that's driving this growth, the structural need and the overarching thing from the sponsor's perspective is generating liquidity for investors in private equity using the secondary market. It's great. But the only thing that moves DPI is a GP-led transaction, IECV transactions. That is a really important metric that sponsors are being graded on as they go back to market trying to raise capital for their new funds. I totally agree with everything that Jeff just said. I think that's great insight. I just want to add, I think there's this sort of persistent but false myth out there that the reason we're seeing such growth is that there's a lack of liquidity in the market. I think there's a turbo boost happening right now because there's a broader lack of liquidity in the M&A and IPO markets. Just thinking about our practice over the years and the market over the years, you know, 2024, one of the worst M&A and one of the worst IPO markets of the last quarter century was our best ever secondaries year at the firm. I think the best ever in the market. So you say, okay, well, let's suggest that lack of liquidity leads to secondaries activity. But before that, our best every year was 2021, which was by far the best year for M&A and by far the best year for IPO is the last quarter century. And so there's a little bit of like a non-correlation aspect here. I think people assume that there's a correlation. I'm not sure there is. Then when you also look, you know, Adam, you mentioned the growth of the market from 2015 to now. I would go back, just look at the secondary of the GP-led market from 2012 to sort of 2024. 2012, you know, GP-led was roughly around zero percent of the market. We were just inventing it back then, right? That growth, that growth from sort of a zero dollar market to a 50 plus billion. I think it'll be, you know, much more than that this year. That happened mostly over the course of like the 10 year boom in M&A and IPO. I was kind of the free money post financial crisis period. There was no lack of liquidity in the M&A or capital markets. Things were going very well. That was when we had the exponential growth in the second. And I think the reason to go through all that data, I think the reason is it has just emerged for secular reasons as it's own, there are reasons to do a GP-led. Just like there are reasons for a particular portfolio company to do a strategic M&A transaction or to sell to a sponsor or to sell to the public, there are just deals where it makes sense to do GP-led. It is not like some backup deal when you can't do M&A quite the opposite. I think there are just strong reasons why you would take this exit. Just like you would any other exit. And those continue to grow. And I think just like to pick up on what Jeff said, there is just broader sponsor acceptance of it as its own deal type. And I don't think there's any reason to think that that's going to slow down. And I don't think it's derivative of M&A activity or IPO activity. I think just at least for parts of the world, the awareness of GP-leds or CVs previously, we're not that high, hence the acceptance level was also not that high. And there are still parts actually, especially in Asia, that people kind of still have heard of it, but not don't really know exactly how it works. So there's still more to do. Secondly, it's interesting because previously you think about exit channels, right? There's trade sales, there's secondary sales, there's IPO, and then the sell-down of the shares, right? But the CV market actually has become more of a main stay of an exit channel where it previously was just sort of a niche way to provide liquidity to your investors. But it's actually becoming just yet another category of its own. And I think that's going to be the norm going forward. And lastly, we have seen, and we've seen that in Asia for some years is using CVs in a growth segment, growth and venture segment. But I think that's also the case now globally. You see these large CVs being raised for very large trophy assets. And I think that's going to continue to be the case. Jeff, you've been talking about the fact that CVs are a great way to deliver DPI in this kind of environment. Leo, you're saying it's not necessarily correlated to where the downturns of the market and Brook, you've been talking about certain segments of the world. There's less knowledge in education about CV technology. I guess I'm curious. I was looking at some other data that was showing that 16% of all exits so far this year globally have been done via CVs. That strikes me as quite a large amount of exits using GP lead technology. If you just go back three years, that was 5%, then it jumped up to 10%, then to 12% and now to 16%. I mean, I think some of that is the turbo charge from the fact that M&A activity is way down. So I think it just has a percentage of deals. I think the denominator has changed just aren't as many M&A deals. So the GP delays that are getting done are higher. That said, even when M&A activity comes back, which we're already starting to see green shoots both in M&A and in IPO activities, I think we are hopefully starting to see a renaissance there. I don't anticipate it slowing down kind of absolute dollar on GP leads. I think that'll continue to grow. I think if anything is capital constrained right now, wouldn't surprise me though to see the percentage start to turn back. I think the numbers quite big right now. I completely agree with Leo. To me, I think that's more common on the denominator and the way we look at the world. And again, I focus a lot of my time on single asset CV transactions in 2024, about 30 billion dollars in single asset CV transaction volume closed in the secondary market. We look at that number relative to the almost four trillion dollars of private equity in AV that exists. IE, roughly about a maybe 1% yield off of total private equity has resulted in the single asset CV transaction market today. It may seem like a big number relative to the secondary market and where it's growing, but it is a still a very, very small market and indicates how much more room there is for growth as we look out into the future. I totally agree. I think if anything, the market is constrained both in capital and in human resources. I think there aren't enough buyers and there aren't enough advisors. There's more deals than there is capital. Like you said, there's about 1% penetration of single asset deals. Let's call it getting to 3% penetration across private equity assets overall. If you look at just like annual turnover for credit, I don't think we're even approaching 1% yet of annual turnover versus AUM in the secondary market, same for infrastructure and VC. It's funny, as big as it's kind of, we're easily going to cross over $200 billion in secondary activity this year. I think we're already, according to some of the numbers, I've seen through the third quarter, we've already surpassed all of 2024's volume levels, which is amazing because that was the peak to date. It still feels like we're in the early innings here. There was a lot of room. We could easily double or triple the size of this market over the next few years. It does not feel like we're close to the end here. I want to ask, there's been some sort of reports which have mentioned that GPs in this environment are using GP-led technology and CVs to help support primary fund raisings as well. I'm just curious, are any of you on this discussion seeing that being used at the present? Yeah, that's one pretty big, actually motivating factor, right? In a way, you think about CVs and GP-leds, and they used to be in the fund or close and the fund life, and you need to generate liquidity and so on, but it's evolved into an active tool that people use, maybe to generate liquidity in midlife for LPs, but inevitably also to help their fund raise with the primary staple. There's just so much that's at play, and I agree with Leore and Jeff that there is a lot to be done because it's still a very, very small fraction of the overall productivity AUM, right, or NAV, but you do hear different voices from different stakeholders around the table, right? Some concerns and some are proponents and some are against it, because there are very complex incentives at play from different stakeholders, so something definitely to keep in mind, and Adam, as you laid out, the primary fund raises is one of them, so then it doesn't necessarily create a hundred percent alignment from the seller to the buyer to the GP, et cetera, so could be complicated. If we go way back, one of the first things the SEC said about secondaries was back a little over 10 years ago in 2015, I think one of the senior SEC people came out in a speech and said that they viewed staples attached to secondary sales as a really bad conflict of interest, and they didn't see how how general partners could kind of live with their fiduciary duties and do that, because I was, you could skew pricing, you had different duties running to different people into different funds, and it created a complicated situation, so what happened is it went for the kind of staples and secondaries, which were very commonplace before that statement from the SEC sort of disappeared from the market for a number of years, so we sort of we went from doing a staple all the time to kind of doing none for about five or six years. When the fundraising market turned a few years ago, and fundraisings have become hard because of the DPI issues, fund raising because it's become harder as we know it's kind of an epically bad fundraising environment right now. We started to see the return of stapled secondaries as a tool to help drive fundraising. I think we've taken the learnings of secondaries over the last decade and applied them, so we do them now with a tremendous amount of disclosure and a lot of thought to the conflicts of interest and a process that's kind of driving at mitigating those conflicts of interest in a way that as much more refined, I think that probably was 12, 15 years ago, but it is, we have seen it come back over the last couple of years, and I anticipate for as long as fundraising is depressed, we will probably continue to see it when managers don't need it as much when fundraising returns, which we hope in the next year or two, you know, I think you'll probably start to see it melt away a little bit as a tool. What I would add to this is their multiple goals that sponsors are solving for and CB transactions. In a gold star CB transaction, the most important driving force and doing the deal to begin with is because there's a need for the capital. There's a clear value creation plan and there's a tonic conviction in holding existing assets and driving further earnings momentum in those businesses. That is also elegantly married with the need also across the existing LP base of that private equity sponsor for distributions, right? The ability to do a CV transaction and raise capital from the secondary market to help extend the life of certain assets while also giving LPs an option for liquidity in an otherwise hard to find liquidity, private equity environment is a win-win transaction. There's a lot going on here and then when you further marry that with increasingly as we've talked about, the need to demonstrate DPI metrics when sponsors then go on and have discussions with LPs about a next fundraise, you can see that there's a lot of different driving forces in CV transactions and not all CV transactions may make sense, right? One of the popular misconceptions that I hope we unpack today is the nature to paint the whole market in the same way to generalize, to treat it in a homogenous way. There are CV transactions that make sense that are clear win-win-win and then there are other CV transactions where I think it's debatable, whether the go-forward alignment profile for existing investors is married with the need for liquidity from existing investors. It's all part of the need to diligence these opportunities as you kind of consider the overall funnel. And maybe just one thing to add to that point, as we look at our CVs and CVs with stable, CVs without staple and actually overall secondary is with staple without staple track record, right? Hinds, actually we have deals that the staple did incredibly well, better than even the secondary portion, right? And then if you look at the overall staple track record, it's actually very, very good. So I think it's one thing to look at things in theory. We get questions about that all the time, you know, clearly in theory, the staple drag sound returns, drags down IR, etc. extends the life of the secondary, so on. But as investment investing goes, things don't happen the way you kind of in theory anticipate them to happen, right? So I think ultimately it all comes down to number one, underwriting of the assets that's on the secondary part. And then on the other hand is also the quality of the staple, the quality of the GP and also the cycle that you're in and the deals that they're able to do, right? So it all comes down to the micro. Absolutely fascinating, the fact that a staple deal is not necessarily dilutive to a transaction and that the primary can even outperform the secondary. I'm really curious, what are you all seeing in terms of ratios being asked? I mean, if you ask sort of about the market average, I don't know if there's actually a real calculated or encompassing market average, but I think conventional wisdom is somewhere between two, something to one, so basically two, call it 2.5, whatever of secondary to one primary or two to one, something like that. For us, that's probably the maximum that we do, but in many, many cases, if we do do a staple, it would probably be higher in terms of secondary to primary than that. We've done staples in a range of four to one, five to one, even depends on the deal sides. Yeah. Because sometimes it's they're not necessarily looking for volume, right? GPs aren't not necessarily looking for volume, but they're looking for a investor to come in to add to their roster to build future relationships with, and then also to be able to act as a reference to their fundraise. I want to hear about what's going on in the mega cap sort of CV space. How large are these funds getting? What kind of asks are you seeing in terms of size? And I'm curious about where the capital is coming from to back these deals. Let's hear from the buy side first, and then we'll see from the legal perspective. What are you seeing in terms of the massive deals out there? Well, when you look at those deals, the single asset CV market has difficulty in aggregating capital above about two billion dollars. When you get past, call it one and a half billion dollars, there is a need for a syndication in that takes time, and that takes resources in talking a lots of other parties. So there is natural friction in our market. Again, going back to the theme of the need for further scaling and further adoption by side capital formation. The market's just not there yet. So for very, very large assets and more specifically large capital raises around single asset CVs, they can get done. They take longer, they take more capital partners, they introduce more risk, and they also come with the notion that larger companies themselves may be disproportionately indexed to the requirement of achieving liquidity through maybe only an IPO exit. So you have a couple of different things going on. You have difficulty in raising large amounts of capital, right? As you approach two billion, maybe even three billion, we've seen a couple of CV transactions, single asset CV transactions, try to raise that amount of capital, it can get done. It may take a year to do so, but you're also seeing a sentiment in the market of trying to focus on what we call the next buyer analysis. In the market talks about next buyer analysis, in trying to find businesses that are not so large that they can only achieve liquidity through IPO. So there is a focus of using CV technology around more mid-market businesses, and there is a bit of an investor sentiment trend in that direction. Whether it's multi-assets CV or single-assets CV, I've been just pretty much stunned at just how much bigger and bigger these deals tend to grow in the past few years. It's quite amazing, but to Jeff's point, the larger the deal goes, it's just more difficult to close and but that's on a relative basis, every year that mark seems to shift. So it just, again, speaks to how much also need there is on the buy side, on investors at how much capital there is for this market, and also there is a lot need for liquidity generation. Jeff spoke about sort of single asset, and I guess you guys are very familiar with the US market. I just speak from the Asia market perspective, at a certain point when that deal sides get to a certain quantum and it's much smaller than that of the US and Europe, right? A deal just, the certainty to closing is just significantly, significantly lower. It becomes really, really difficult just because of just the limited appetite. There is for that big of a size of a deal. Single assets tend to be smaller, multi assets obviously are bigger because of the diversification, but we, I mean, LGT, we prefer to do deals not that big, and if you look forward to eventual exit, then if that company is that of a size, then it's just all the more difficult to get to that eventual liquidity event. I mean, listen, there's also the fact that you have to deploy capital. I mean, I think at the end of last year, we had north of $200 billion of dry powder. I think now that's shrunk a bit just because so much capital has been deployed, so it's probably about 175 billion of dry powder. The shocking thing is probably about half of that I saw in one stat, about half of that existed just the top eight buyers. So there's a pretty concentrated capital pool out there for deployment. The funds that they are raising are getting bigger and bigger, and so the check sizes that they're looking to write are getting bigger and bigger. We recently closed the deal actually is in the credit space. We recently closed the deal. The bids were out for well north of a billion dollars of sales volume, and we had multiple buyers show up to take down the entire thing with no syndication at essentially part pricing. That's not something we would have seen two or three years ago. I think that the ability to capitalize deals at our bigger is growing. I think to the point, what is considered a big deal is changing. I think three, four years ago we could not have done a billion dollar deal without meaningful syndication. I think three or four years from now that will be considered a sort of routine deal, and I think the market is just shifting in that way. I think the trend line is only upwards, especially as the mega funds continue to grow. To what extent are you all seeing semi-liquid capital backing GP leads either leading or as syndicatees, could you put the figure on how much of the buy side capital they might account for in a couple of years time in terms of backing GP leads? That source of capital has been active in a syndication capacity, and we would expect would continue to do so. It is a bit harder for that capital to be in a lead position. I think a lot of that comes down to the nature of concentration and the need to manage diversification in those types of vehicles. A lot of the scaled capital and the capital formation that's occurring in this market is around much more concentrated portfolios, right? Is sponsors race capital that looks similar to the levels of concentration and a buy out fund? That is very, very different than the levels of diversification that are planned and envisioned for 40 act funds. We would expect those sources of capital to continue to be active in syndication, picking smaller amounts of deals and more of an index approach, but we would not expect them to launch into a lead capacity in the near or medium future. Very interesting. Then looking at the lower-in-bit market, I broke this as part of the market that you mentioned, you were more interested in in terms of size, what's going on in this space? Everyone is talking about this being the next big growth engine of GP leads. Are there idiosyncrasies that happen in this part of the market that only exist in this part and don't really apply to the large cap, but what are they and what are the potential challenges to more growth here? I think this multi-middle market segment is probably a bit more idiosyncratic and a bit less transparent compared to that large mega-side of the market, both from a GP perspective as well as access to the GP or knowledge of the GP and then also from GP's knowledge of the CV market and GP let market as well as to the assets. These are smaller companies in that space. I think they tend to not move with the market beta as much, and then also you can depend on the deal. Every deal is just a little bit different. Then also if you think about the knowledge and acceptance of CVs, the ones that we see that part as a market just doesn't know as much. I think that's where actually a lot of growth is going to come from. If you just go there and then educate people and actually, "Oh, okay." Then some of these are actually pretty sophisticated markets. These are mature productivity markets, so you'd be surprised to actually go in and they maybe have heard of it, but don't really understand what exactly it is and haven't really even thought about actually, maybe that's a way to drive liquidity. I think there's a lot to mind there, but it's a lot of work because these are not very large deals and these are fragmented GPs for different sectors and industries that you do have to spend a lot of time and a lot of effort to do that. One of the popular misconceptions in the single asset CV market is that it is all large companies. If you actually unpack the data more than 50% of deals that are coming to the single asset CV market are actually businesses with less than $3 billion in enterprise value. You've already seen the market shift, and that's two things in Brook Touchdown. If there's a sponsor adoption component as middle market sponsors, if seen what was kind of led with large cap sponsors, and they've seen that acceptance both within the sponsor community and with the LP community and we should double click on that at some point as well. You've also seen again this theme in this investor trend of focusing on middle market assets. Investors have taken note that there's been very little liquidity provided by IPO exits in the last few years. There's been this shift in this attention and focus from the buy side as well on those types of assets. That's why you've seen that and we would expect that to continue to increase. It's a huge market in the US and Europe. There's a ton of assets, there's a lot of quality assets, and if you take a step at what we've seen happening in the single asset CV is really a cannibalization of what used to be sponsor to sponsor transactions. Now middle market sponsors that have great businesses and spend time building those businesses in their initial hold period, right? Four to five years. They installed the management team. They've applied their value creation plan. They've had a lot of success and they have a lot of visibility and confidence in where this business is going over the next four to five years. They looked at themselves and they say, why would I sell this asset that I have so much conviction in to another sponsor and watch from the sidelines as they generate a three four five times return on that and then then having to find another asset that they just by definition don't know as well to invest their next deal and so there is broad adoption and cannibalization that part of what used to be sponsor to sponsor deal for. Let's talk about some future growth and it strikes me that that new entrance to the market in a PJT's report came out last week and it said that this year so far there have been more than 25 new entrance to the GP lead by side. That surprised me. I thought I could probably count three to five at a push, but 25 is a lot. My question is, what does the influx of this new by side capital do to the market in terms of pricing in terms of competition? Is it overall a good thing? Expanding the market and what impact will this have on things like volume for this year? The first thought is it's a compliment. The incumbents in this space have long known about the virtues of GP lead transactions. I think there's realization as sponsors do these deals on the sell side, then realizing the quality of these deals and wanting to get into the by side. So I think that says a lot about the virtues of the market. I can't count 25 either, but there is certainly a trend in a number of primary private equity firms raising their hand or signaling a desire to get into the market. This feeds to what we were talking about earlier about how by side capital formation however takes time, especially in the construct of drawdown funds. So even though you've seen intent, not much capital has actually entered this market from that consortium of new entrance. And even when you add up the aggregate amount of targeted or desired capital raised by new entrance and you divide that by the investment period that they will do it, they will invest that capital and you compare that to the overwhelming amount of supply of deals. It still doesn't move that overall equation in that overall supply and demand for capital and balance that exists in the single asset CV market. The ones I've seen and I think this actually makes our impact a little bit more diffuse. The ones I've seen and we have seen, I mean, to be fair, we've seen a lot launch this year. They tend to be specialized though. Like I don't think we've seen a lot of just general, like the next Lexington big cap. We do all sorts of different secondaries. That's not what we've been seeing. We've been seeing credit shops opening up a secondaries arm or traditional LP side investors moving in to GP leds and launching businesses around that. We've seen, so we've seen sort of in credit, we've seen an infrastructure, we've seen it in single asset GP leds. That's where we've seen people going out to raise money. So it's really much more targeted than just, let me go raise the next big secondaries fund. And so yes, I think it's great. I think that kind of specialization is wonderful. I think it's going to drive a lot of sophistication and innovation in those specific markets. I think we're going to see those markets are institutionalized. That's all to the good and good for every participant in the market from the advisors to the to the buyers to the sponsors, but I just don't see the numbers getting all that big from the new entrance anytime soon. We are seeing GPs, right? More GPs launching this extension strategy as part of their platform, right? Obviously there's plus and there's minus and this and that, but we don't need to get into it, but that is definitely a trend that we're seeing. Let's get super niche now. I know that some of you really wanted to look at terms of transactions. Curious, super carry was something that was associated with CVs most recently. The question is, is that still a thing? And to what extent has the pendulum swung in the favor of sort of buyers when it comes to terms? We have seen the pendulum swing a few times over the years on things like carry, on things like GP alignment and what sponsors need to put into the deals. Those are the big areas where we're seeing swings. Years ago, super carry was pretty typical. We saw it in a lot of deals. I think that pendulum has definitely swung. It is very much in the minority right now. I think I saw one stat that it was between 25 and 30%. I think I probably would have pegged it a little bit lower, maybe more like 15 to 25% of deals were seeing super carry. A routine deal now on a routine asset is unlikely. Let's see super carry in what we see. If it is a top manager with a top asset where they have leverage and they're over committed on the buy side, then we can drive those types of terms, but it is not in favor like it was a few years ago. But that pendulum will swing back as the markets develop. Maybe a couple of additional thoughts on this. Obviously, the buy side market does not like super carry, right? So when you put on your buy side hat, the real question is at what level? At what level of return would you entertain the notion of paying a carry rate to a sponsor that's above that 20% carry norm? So the question always comes back to in these particular instances, which I would agree with. We are a minority of deals in the market. The question is always at what level of net return to the investors around the table? Now, the other part of this, which we do our best in the market does its best to counsel sponsors is there's a natural question that also is asked around these deals when that element does exist from the selling LPs or the existing investors in the fund that houses the asset is if there is super carry on the deal, does that mean that they achieve the highest price that they could have for that asset in the process? Right? And is that a conversation worth having with your LPs for the benefit of trying to get an extra five or 10% carried interest from the buy side? So there's a lot to unpack in these discussions. It is obviously much cleaner in these transactions not to have that, but it does creep in. And I think it creeps in on assets that are truly outstanding at levels that I think most people around the table on the buy side would be okay, accepting. Yeah, it's just so nuanced in these CV negotiations and the GP certainly needs to balance so many different aspects of the as Jeff mentioned, right? There's the LPs, there's the buyers, there's themselves, there's conflicting in some cases, right? So I think from my perspective, it all comes down to alignment. This is from a buyer's perspective, okay? It's just all alignment because we are doing a CV when the deal is happening, we are in a driver's seat in terms of the go shaming the deal and making the terms and so on and so forth. But ultimately, when the deal happens, when that CV is formed, you are relying on the GP to do the best for you, right? So you have to have alignment. That's it. So then from a buyer's perspective, if supercarry makes sense and if it's a deal that could have that potential, why not? But then again, you know, as Jeff mentioned, you still have to, the GP has the balance on the cell side and what does that mean, right? So in the end, it's not an easy way to generalize. And just to add to what Brooke is saying, you know, really what it means is just a real need for transparency. Sponsors have to make sure that they are communicating all of this to their LP community, you know, to their LPAC and connection with conflicts, care and it's like, all this has to be out in the open. You have to give people an opportunity to talk about it, ask questions about it, make sure they understand. And that's how you start to run process to mitigate all these concerns. And yes, there are conflicts. And whether we have supercarry or don't have supercarry, if we have lower carry, that creates conflicts in the other direction, it's just conflicts all over these deals. And that's fine. Like the market has developed understanding that there are conflicts. It just means that you really have to keep them in mind and be thoughtful. You can't drive kind of only to the buy side or only to the sell side or only to the rollers. You have to have everyone in mind and be very transparent with your LP community throughout the process to make sure they see all these things. Absolutely. And we see just so many instances of deals falling apart because of that, right? It's not necessarily pricing. It's not necessarily something technical. It's really just how the process is managed and it just falls apart. And on that point, just GP really understanding all of that, getting the right guidance, whether it's from a legal perspective, from a process perspective, rise is incredibly, incredibly important. You really need to have a high level EQ to manage the process properly and make sure that everybody's heard it along and everybody's generally pretty happy and satisfied with it. It's actually one of the nice areas where like business risk and legal risk line up really well, and by being transparent, you de-risk kind of executing the deal on the business side. You have a better sense of what your cell volume is and what your clearing price is. You get a lot of information along the way and you really increase the likelihood of getting the deal through. So it's great for business execution de-risking and it has the wonderful effect of also de-risking on the legal side. So I'm not always in a position where what I want to do is what the business people want to do, but I think this is one of those nice places where those two things line up really nicely. Super interesting. I was going to ask if any of you had seen the deals fall apart because of egregious economics and Brookit sounds like certainly have. I'm just curious, does it always get to that point where things just break down or most of the time are people willing to kind of negotiate and talk and try to get to a place where they all kind of are aligned? What typically happens there? Not necessarily egregious economics. A lot of it is just mismanagement of communication. It's just like somebody says something, somebody forgot to say something, somebody forgot to check with somebody, somebody forgot. It's really a bit of a pity actually hindsight. Because again, you're I think the Orr mentioned, it's a group of LPs on the cell side that you're dealing with. It's not one single entity. You've got to recognize that everybody's incentivized differently. Everybody's motivation could be different. Everybody's culture could be very different. How they look at these things or could be very different. Transparency is just so, so, so important. A lot of the time it's not done because it was intentionally so. It was just that it's just such a complicated process that something gets forgotten and then you'll kind of fall apart. Yeah, I would add to that. Most of the focus in these transactions, again, in Gold Star transactions is not about these topics. It's about the company. It's about the value creation plan. It's about the conviction of where this business is going. The more the conversation is about the fees, the more the conversations about the carry and the super carry and this and that, that's a red flag. There is a good amount of EQ and focus that's required in the better transactions from the less good transactions in this space. It does happen. Obviously, this part of the transaction is zero sum. But when you take a step back, these transactions are really about partnership and it's about finding the right capital partner to be invested in these businesses alongside the sponsor over the next four to five years. So the more the conversation is about partnership and the excitement around the assets themselves, that's typically indicative of the quality of the transaction and the opportunity itself. Okay. So to the legal expert for the hot regulatory topics, Leo, what should folks in the market really be thinking about as we face the end of the year? What would be kind of regulatory issues that are facing the market right now? So I've been a lawyer long enough to know that nothing is like hot or cool in my world. So let's let's avoid using those terms. Sorry, like I think this stuff people have to deal with. There's good news in bad news. I think the good news is we're in a very different regulatory environment than we were. I think, you know, for the out of the Biden administration, we had sort of a crusader leading leading the SEC. He was really looking to move the market. He was looking to punish Wall Street in a way. And that made its way down into the exam enforcement staff. We were seeing very aggressive questions on exam. GP leds were clearly on their list of things that they didn't like. I actually trained the SEC on GP led secondary transactions a few years ago and tried to explain to them why these were good things. Obviously didn't do as good of a job as I would have liked because for a few years, they were really on the war path. The current environment is different. You know, they are still going to hold the market to task. We still have a regulator and they still care very much. But it's not being led by a crusader who's really looking to make a point. So I think the SEC would love it has for a number of years and would continue and continues. It would love to bring a case showing kind of kind of a and some aggressive GP led tactic that they don't like. I think they would they would love to bring a GP led case. My view on that is like, let's not give them one. I think GP leds have evolved in a smart way. There's smart industry best practices. I think it does show the importance of having smart financial advisors, having smart sophisticated buyers. If I dare say so, having smart sophisticated legal counsel, I think all that keeps these deals on track. People who know the market and are sophisticated and know how to do it in a in the right way to kind of avoid regulatory scrutiny. Because if someone does things the wrong way, we're going to get regulatory scrutiny. But it is not as bad kind of the kind of the gotcha environment that we lived in for the prior four years. That's gone. The temperature has come down, but it has not changed. It's kind of the need to do things the right way. I think people should be comfortable operating in the market. I think that's why you're seeing new entrants. I think that's why you're seeing the volumes growing as they are. There's a good path for how to do these deals. Do them thoughtfully. I think you can access this market comfortably. Just make sure you're doing it kind of properly and with the right advice. Well, that's like a really positive place for the market to be. So glad to hear that, Leo. Let's move to the outlook. What is your kind of outlook for the growth of the GP led market over the next 12 months? When the M&A market starts to really open up a lot more and we've talked about the kind of green shoots that have been coming recently. What impact do you think that will have on the GP led in the CV market? Over the next 12 months, I mean, I think it's going to be still really robust volume, right? Obviously, I think this trend is going to continue. There's people still seeking full liquidity and that's from my perspective, the base case scenario. In terms of if the M&A market comes back, how would that impact the GP market? I mean, overall, frankly, the secondary volume versus the overall P volume, it's still a very small fraction. And if you think about the GP led space or the CV space, at this point, it's half, but historically, it's been very low, right? So I still think in general, there's a lot of growth to be had and there's a lot of room for growth for secondaries. There's no reason why secondaries or CVs cannot be and should not be one of the main exit channels for these probability assets similar to M&A, similar to IPO, like I mentioned before. So I think there's still a lot of room for growth. Adam, I love the second question because it gets to one of the foundational misconceptions of what's caused the growth in the single asset CV market and why these transactions happen. We actually don't talk about it and the market doesn't really talk about single asset CV transactions as being an exit. It is all about gold star again, not every deal, again, you can't, you can't generalize the entire market, but the vast majority of deals that are done and certainly the better ones are all about sponsors that want to hold the asset for a very clear and compelling reason. So we often, the buy side often gets the question of what happens to these deals when the IPO markets more fulsomely reopen and when there's more sponsor to sponsor deal activity. Well, in the best of these deals, nothing changes because it's not about seeking an alternative to an asset that can't otherwise be sold right now. So that is a very important part to touch on. And then as you think about where we're going, the market itself, let's use some numbers, total single asset CV deal volume in 2024 was about $30 billion in enclosed transaction volume. The market has sourced in the last 12 months, about $100 billion of opportunity, right? The difference is capital formation. And right now what's happening in the market is education. It is educating prospective investors on what's happening in this market, why it's interesting, and what's going to cause more deals to close in the future, what's causing this growth, what's the laggard is as that capital is raised in this market, you're going to see closed deal volume go up into the right because that's the constraint. There is more than enough deal flow to support at least $100 billion in the next foreseeable future. So that's really where the market is focused on educating prospective investors and talking to investors that are existing investors in these private equity portfolios that are seeing these CV decisions themselves and helping them make sense of how they should think about the various decisions that they have to make and how to think about whether or not they should actually be more participative on the buy side. So a lot of that is happening behind the scenes, but that takes time. Yeah, we listen, there's sort of a fallacy built into the question, which is what happens when the M&A market reopens. I'm not sure it has a massive impact on the second. The second is market is its own thing and it is operating with its own secular reasons for growth. These 25 new entrants, these hundreds of billions of dollars of raised capital, you know, the fact that in three quarters this year, we've already surpassed the secondary's volume for the entirety of 2024. Those facts are not driven by the fact that the M&A market is soft, right? That's not changing because I mean, that is a huge infrastructure that is being built in this market, that is its own market, that is not tied or derivative to the M&A markets. This thing is growing. We are still in the early stages. The penetration is still very, very shallow, you know, including LP leds, like I said, maybe about 3% annual turnover in PE assets for secondaries were less than 1% and kind of the other asset classes. There is capital being raised, like if we look at like credit, for example, where we were stuck at 3 to 5 billion of secondaries volume year after year after year and suddenly it jumped to 9 billion. Now this year we're expecting it probably to hit 20 billion dollars. We've done billion dollar plus portfolios already this year. It will easily hit I think 20 billion. That's on a rocket ship to 50 plus billion in the next couple of years. There are credit secondary shops being raised where they are tying their cost of capital and their kind of return expectations to credit returns. So it's opening up this whole new world of credit. We're in early stages and it really is not needed with the M&A market or the IPO market or anything else. It's just structurally a need for liquidity in this space. That's going to grow market acceptance is growing. We're very, very bullish on the secondaries market and not just in the next 12 months but probably the next 12 years. That's all for today. Thanks again to Leo Lander from Davis Polk, Brook Joe from LGT Capital Partners and Jeffrey Bloom from Lexington Partners for joining us. To make sure you keep getting all the best analysis of the burgeoning secondaries market, subscribe to secondaries investors' second thoughts wherever you listen to podcasts or at secondariesinvestor.com/podcast. For secondaries investor I'm Adam Lay. Thanks for listening.