The Fundamentals of Infrastructure Secondaries

Introduction

The secondary market has been a hot topic of conversation across private markets throughout the 2020s. Continued growth in deal volumes driven by overall private markets NAV growth and the ongoing evolution of the GP-led market, along with increased activity in the secondary GP universe—through new strategy launches and M&A activity—has brought secondaries to the forefront in LP conversations.

As a less mature private market sector, infrastructure has not always been a major part of the secondaries conversation; however, this is changing. Deal volume has grown markedly in the past few years, as has the number of conversations we are having with LPs about this opportunity. While the specifics of those conversations vary from one LP to the next, they do share a common interest in understanding the fundamentals, which we explore in depth in this whitepaper.

The opportunity 

Like other asset classes, infrastructure’s secondary market includes two distinct components: LP interest and GP-led deals.

• In an LP interest deal, LPs sell their stakes in private market funds to another investor. LPs may seek to exit their positions owing to reasons including portfolio rebalancing, liquidity requirements and strategic reallocation.
• In a GP-led deal, the fund manager initiates a sale to offer liquidity for existing LPs. The GP retains control of the asset(s), which are often transferred to a new vehicle. Existing LPs are typically given the option to either liquidate their position or reinvest. GP-leds can take many forms, for example, single-asset or portfolio continuation vehicles (CVs), tender offers or strip sales.

While each type of deal has different characteristics and drivers, common tailwinds are propelling the market in aggregate.