Apr 8, 2024 · 45m · capital-allocators
Nigel Dawn - Secondaries in Private Markets (EP.378)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Nigel Dawn, Global Head of Private Capital Advisory at Evercore, to explore the evolution, mechanics, and rapid expansion of the private capital secondary market. Dawn provides deep insights into LP portfolio rebalancing, the rise of GP-led continuation funds, pricing dynamics, and the transformative impact of retail capital inflows.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 28.2% of the talking time here. How this is scored →
Ted as informed peer 2.6 Guest teaching 3.8 Guest disagreement 0.1 Ted pushing back 0.1
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 24:15 Nuancing GP-to-GP competitive dynamics
Nigel gently reframes Ted's premise about GP rivalry, explaining that GP buyers typically target smaller sponsor portfolios and bring value-add capabilities rather than sparking competitive friction.
Hardest push from Ted ▶ 23:53 Probing GP competitive resistanceTed presses Nigel on whether existing sponsors resist allowing competitor GPs to participate in continuation funds and gain visibility into their operations.
Biggest teaching moment ▶ 29:45 Defining proper continuation fund rationaleNigel directly educates on market misperceptions, emphasizing that continuation funds cannot be used to rescue failed sell-side processes or turnaround assets.
Ted holds their own ▶ 33:36 Ted framing NAV loans as alternative liquidityTed demonstrates industry insight by pivoting the conversation from secondary equity solutions to the rise of debt-based portfolio liquidity mechanisms like NAV loans.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Guest Overview and Opening Yankee Baseball Monologue | 1 | 0 | 0 | 0 | Ted opens with a baseball monologue and transitions into asking about Nigel's personal background and early career in England and China. Nigel provides a standard personal history in an entirely collaborative tone. | |
| The Nascent Secondaries Market and UBS HarborVest Deal | 3 | 4 | 0 | 0 | Ted asks about how Nigel entered the nascent secondaries space at UBS and the stigma around early transactions. Nigel educates Ted on the early history of the market, including the landmark UBS HarborVest transaction and how asking GPs for consent to sell was viewed like a divorce. | |
| Post-GFC Portfolio Realignment and Market Size Growth | 3 | 4 | 0 | 0 | Ted prompts Nigel to explain post-GFC dynamics and volume trends. Nigel details how unfunded liabilities pushed endowments and pensions to normalize selling for strategic portfolio repositioning. | |
| Moving to Evercore and Building the Secondary Advisory Platform | 3 | 3 | 0 | 0 | Ted asks about the differences between bank leadership and asset management leadership, followed by why LPs transact today. Nigel outlines the growth of Evercore's platform and the modern portfolio management rationales for LPs. | |
| The Rise and Mechanics of GP-Led Continuation Funds | 2 | 5 | 0 | 0 | Ted asks when GPs began initiating secondary transactions. Nigel gives an informative breakdown tracking the evolution from zombie GP restructurings a decade ago to modern trophy single-asset continuation vehicles. | |
| Pricing Dynamics, Role of Advisors, and Asset Specialization | 2 | 4 | 0 | 0 | Ted inquires about pricing across sectors and how buyers and sellers are matched. Nigel breaks down discount ranges for buyout versus venture and highlights the role of advisors in resolving GP conflict of interest. | |
| Secondary Buyer Landscape and Traditional Sponsors Launching Secondary Strategies | 3 | 4 | 0 | 0 | Ted asks about the composition of the buyer base. Nigel explains the entry of traditional buyout sponsors launching their own continuation fund secondary strategies as a hedge and sourcing strategy. | |
| Value Addition and GP Buyer Dynamics in Single-Asset Continuation Vehicles | 4 | 4 | 1 | 1 | Ted probes GP-to-GP competitive sensitivities when sponsors buy into peers' continuation funds. Nigel nuances the premise by explaining that capital usually flows down-market to smaller GPs, and clarifies how recent ILPA status-quo guidelines removed carry crystallisation conflicts. | |
| Secondaries Market Sizing and Expansion into Private Credit | 3 | 4 | 0 | 0 | Ted asks how secondaries can support liquidity across the vast private markets and explores private credit secondaries. Nigel compares market size relative to total AUM and assesses why private credit secondaries are growing but structurally limited. | |
| Analyzing Sound Rationale vs Problematic Continuation Deals | 2 | 5 | 0 | 0 | Ted asks for war stories and best versus worst practices in GP transactions. Nigel explains that continuation funds fail when used for distressed assets or failed M&A exits, emphasizing alignment and growth capital requirements. | |
| LP Perspectives and the Continuation Fund Execution Timeline | 2 | 4 | 0 | 0 | Ted asks about LP critiques and the practical timeline of executing a continuation fund. Nigel details the standard four to five month roadmap, emphasizing LP election windows and information parity. | |
| Comparing NAV Loans with GP-Led Tender Offers | 3 | 4 | 0 | 0 | Ted raises NAV loans and alternative liquidity tools. Nigel contrasts why NAV loans for LP distributions are deeply unpopular with LPs, whereas NAV loans for portfolio company growth and GP tender offers are welcomed. | |
| Actionable Advice for Secondary Sellers and Prospective Buyers | 2 | 4 | 0 | 0 | Ted asks for actionable advice for prospective LP sellers and secondary buyers. Nigel provides practical guidelines on portfolio bundling (mixing trophy assets with weaker ones) and buyer pragmatism on legal terms. | |
| Industry Forecasts and the Impact of Retail and '40 Act Inflows | 3 | 4 | 0 | 0 | Ted asks where the market is headed and digs into the impact of retail and '40 Act fund inflows. Nigel forecasts the GP continuation fund market reaching $250B and highlights '40 Act funds providing steady, compounding buy-side capital. |
Statements from this episode (29)
Dawn: Cogent Partners was the only PE secondary market advisor in 2001
“So when I first found out there's only one advisor and they were a startup in Dallas called Cogent Partners.”
Dawn: 40% to 50% of Early Secondaries Flow Came From Banks
“Also, maybe 40 to 50% of the flow in the market was actually bank selling similar to UBS.”
Dawn: Early LP secondary sale requests felt like asking for a divorce
“Most LPs were very concerned about asking the GP for the right to sell, because every transaction, you require the consent of the GP. And often then, less so now, that was in the GP's sole discretion. In some ways, it was considered similar to asking a spouse …”
Dawn: PE secondary market volume in 2024 will top $130 billion record
“2021, which is a high watermark up to this point is about one 30. And I suspect we will beat that number this year.”
Dawn: Capital-free secondary advisory units struggle inside large banks
“Also, I think that these are pure advisory businesses that require no capital. And the challenging to run in big integrated banks that do require a lot of capital.”
LPs sell older funds specifically because they stop generating co-investment opportunities
“So I will sell my old funds to reinvest in the new funds so I can generate co-investment business. And old funds don't generate co-investment business. Many LPs these days have very active co-investment program, so they would do it for that reason.”
Dawn: Over-allocated public pensions are driving relative value secondary sales
“More relative value transactions are being executed these days, particularly with, I would say, public pensions who are over allocated to private equity compared to their benchmarks.”
Dawn: GP-led continuation funds now retain trophy assets, not liquidate zombies
“These are the best GPs with their best assets, leveraging the secondary market for a number of reasons. Often it's a single company continuation. This is often their crown jewel, trophy asset, where in the past, a managing partner may have to sell their best a…”
Dawn: Private equity distributions to AUM are near historic lows
“In this environment where distributions have almost been at historic lows compared to assets under management”
Buyout secondaries trade in the nineties while venture trades at 60-80 cents
“Good quality buyouts, probably in the nineties. Venture and growth, very much name specific. So some managers still very difficult to access. So you pay an access premium, but probably more like 60 to 80 cents on the dollar because there's a little bit of skep…”
Dawn: Single-company GP-led secondaries usually transact around NAV
“Generally on the GP side, That on a single company, it usually transacts around the GP's NAV. Typically not at a discount, but if it is, it's at a modest discount.”
Dawn: Traditional buyout managers are launching single-asset continuation secondary funds
“What we're seeing right now, I would say a fairly new development is traditional buyout managers actually looking to set up their own secondary funds, just focused on investing in single asset continuation funds.”
Dawn: Continuation fund transactions represented around 10% of exits in 2023
“Sponsor to continuation fund channel, which was around 10% of exits last year.”
Dawn: $20B in Single-Asset Continuation Funds Closed Last Year
“And there was about twenty billion dollars of single asset continuation funds done last year out of fifty billion dollars of GP driven transactions executed.”
Dawn: Secondary market accounts for roughly 2% of outstanding AUM
“The secondary market is around two percent of outstanding AUM.”
Dawn: Single-asset continuation fund syndication market will grow rapidly by 2029
“Plus, I think when the new entrants I've just identified, the types of group that start their secondary funds just focused on single asset continuation funds, then we anticipate the syndicate market for these transactions will grow rapidly, because you'll have…”
Dawn doubts private credit secondaries will match private equity secondary size
“So will it be as big as a private equity market? I doubt it”
Dawn: Private credit secondaries are currently trading in the nineties
“In the current market, private credit is probably trading in the nineties.”
Secondary markets quickly reject continuation funds attempted after failed sell-side processes
“The transactions that are less favorable to the market is where there's been a failed sell side on that company. And then, oh, that sell side failed. Why don't we do a continuation fund? Now, the market figures that out pretty quickly.”
Dawn: NAV loans used for LP distributions are unpopular and overpriced
“NAV loans that are raised against a portfolio to send capital back to LPs, very unpopular. Very high priced. Many LPs don't like them. They can raise capital cheaper themselves. So those are not popular.”
Dawn: NAV loans to support portfolio companies are acceptable to LPs
“Nav loans raised to support portfolio companies are often much more acceptable to LPs, particularly in a situation where the fund has no more unfunded capital, but the GP needs to grow their portfolio or they need to defend their portfolio.”
Dawn: GP-sponsored tender offers generate better secondary pricing for LPs
“The new investors typically make a commitment to the new vintage funds, and the GP is deeply involved in the diligence on the existing portfolio, which typically generates a better price for the LPs. Those transactions tend to be a win-win.”
Dawn: Most private equity GPs exit portfolios at a 25% NAV premium
“Most GPs exit their portfolios around 25% premium to their NAV.”
Dawn: Secondary private equity market sees virtually zero litigation over 20 years
“There's very, very little litigation, if any, that I've seen in the secondary market in 20 years.”
Dawn: Secondary sellers must include quality assets to pass buyer ICs
“You've got to be willing to put some good assets in a portfolio, as well as the ones you want to get rid of, because you have to remember on the other side, the secondary investor is going to go to their IC. They're going to present the transaction. You need s…”
Dawn: Secondary deals that work at 86 cents work at 88 cents
“And my experience over time is that in terms of pricing, if a deal is good at 86 cents on the dollar, it's usually good at 88 too. I've seen buyers walk away for a point. I'm pretty confident wouldn't have made a difference.”
Dawn: 10 to 20 GP-focused secondary funds will launch in next two years
“It wouldn't be surprised in the next couple of years, there's 10 to 20 new secondary funds focused on the GP side.”
Dawn predicts secondary market volume will hit $400B-$500B within five years
“So it would not surprise me if the GP side of this market is 200 to two hundred and fifty billion dollars in five years time. So if you add that onto what we think is a natural growth also, In the LP market, getting to four to five hundred billion is reasonabl…”
Dawn: '40 Act funds comprise ~10% of current secondary market buyers
“What we're finding is maybe 10% of our buyers right now, maybe slightly more, but what we are seeing is that when both GP and LP side, when buyers are presenting their offers, often one of the buying vehicles will be their 40 Act fund”