Providing Liquidity and Enhancing Value: The Case for GP-Led Capital Solutions

Since the Global Financial Crisis, secondaries have increasingly emerged as a significant segment of the real estate market, with room to grow within a large investable universe.
Real estate secondaries involve the acquisition of existing interests in funds or individual/portfolio investments to provide liquidity to current investors. They come in two main forms: LP-led and GP-led.
Both LP- and GP-led secondaries have the potential to offer access to high-quality assets at favorable entry points, portfolio diversification, shorter payback periods, downside mitigation and more.
Given the volume of near-term fund maturities among small to midsize real estate funds (~$171 billion among ~1,700 funds),¹ limited real estate capital raising and a challenging exit environment for investment sales, GP capital solutions—a type of GP-led secondary—present a compelling opportunity for non-core real estate allocations.

Seeking Value-Add Opportunities Today

In recent years, participants across the real estate market have been playing a waiting game. Buyers want to pick up quality assets at steep discounts, while owners don’t want to sell until asset values recover.

Blame the macroeconomic environment—high inflation prompted tightening monetary policy, namely higher interest rates, which weakened asset values, constrained liquidity and threw cold water on the investment sales market.

Yet, real estate secondaries have been a bright spot, showing remarkable growth following the Global Financial Crisis.

Appetite for bespoke liquidity solutions among general partners (GPs) continues to grow in the face of economic uncertainty and elevated interest rates because their investors are demanding liquidity and are also increasingly recognizing the portfolio benefits that secondaries can provide. Indeed, real estate secondaries fundraising reached over $4 billion per year on average from 2022-2024, which is more than double fundraising activity from $1.5 billion per year on average from 2008-2010.²

Real estate secondaries come in two main forms—limited partner (LP)-led and GP-led—and both offer benefits to investors. However, we believe that a specific type of GP-led secondary—known as GP capital solutions—is especially compelling today because it provides the opportunity to invest in high-quality, substantially de-risked real estate with the potential to generate value-add returns.

Here, we explore the broad landscape of real estate secondaries, including their potential investor benefits and risks, and provide insight into why we believe investors should consider adding GP capital solutions to their portfolios—provided they partner with managers who can add operational value.

What Are Real Estate Secondaries?

Real estate secondaries refer to the acquisition of existing interests in funds or individual/portfolio investments to provide liquidity to current (primary) investors. In these transactions, secondary investors can gain access to mature, income-producing assets, often at a discount, through either of the two main strategies (see Figure 1).

In an LP-led secondary, an existing/primary LP sells its interest in a real estate fund to a new buyer, creating a secondary transaction. Buyers are typically purchasing mature fund stakes with several assets left in the fund, and are able to gain both clarity on what assets they are purchasing (i.e., no blind-pool risk) as well as investment diversification. Traditionally, the real estate secondary market has been dominated by LP-led transactions.

Key return drivers for LP-led secondaries are discounted entry price and the potential benefit of de-risked business plans (since the secondary investor gains exposure to the asset midway through the investment life). However, these return drivers are entirely passive and do not provide the new investor with any clear path to actively drive returns. Given the large asset pool—sometimes including thousands of assets—the investment profile of LP-led secondaries also tends to be more opaque (as it can be difficult to collect the asset-by-asset information) and presents potential tail-end risks given the number of assets involved.

GP-led secondaries, on the other hand, inject fresh capital into existing assets or funds, extending the investment horizon and adjusting the ownership structure. In these transactions, GPs are looking to recapitalize a fund or investment, usually because they want to hold onto quality assets but need to provide liquidity to existing LPs. Secondary investors purchase positions from the primary fund, while the GP maintains control of the underlying assets. Types of GP-led real estate secondaries include:

GP-led tender offers, where the buyer works with the fund sponsor to set the price, and investors choose to sell or continue to hold. Existing fund investors can elect to cash out at the offered price or continue to hold their interests as-is. Similar to LP-led secondaries, tender offers primarily rely on passive return drivers—such as discounted entry points and exposure to mature, potentially derisked assets—to achieve target returns.
Continuation vehicles, which are similar to tender offers except that existing investors can either redeem their interest at a set price or roll it into a new vehicle.
GP capital solutions, which typically recapitalize existing assets and inject growth equity to finance additional asset or business-plan growth. These often include asset management oversight by the new investor and strong governance rights embedded in the transactions. Importantly, GP capital solutions are the only type that provides a clear path to generating active returns.

Figure 1: How Do LP-Led and GP-Led Real Estate Secondaries Compare?

Why Invest in Real Estate Secondaries?

Both LP-led and GP-led transactions offer benefits to secondary investors. They can provide the potential for a discounted entry price, fee mitigation, asset exposure, diversification benefits and near-term income. They can mitigate the J-curve effect, where returns are negative in the early years due to fees and initial expenses. And they offer reduced blind-pool risk because, unlike primary real estate investments, secondaries involve established portfolios. This allows buyers to assess existing properties and better understand the potential risks and returns.

LP-led secondaries offer secondary investors the advantage of diversifying their real estate portfolio through a single investment. Often, these investors can enter the market at favorable prices because the sellers are seeking liquidity and are willing to transact at a discount to net asset value. Additionally, LP-led transactions enable secondary investors to realize returns sooner, as more mature funds benefit from stable assets and established operations.

GP-led secondaries, on the other hand, can provide additional benefits and potential upside (see Figure 2). Managers who already own and operate real estate can draw on their experience and insight into the current business plans, which help the new capital provider better underwrite and potentially mitigate risk. For the new investor, they also offer an opportunity to compare and enhance skillsets and bring additional operating, financing and structuring expertise to an investment.

Figure 2: What Potential Investor Benefits Do LP- and GP-Led Real Estate Secondaries Provide?

Source: Townsend.

The Opportunity Set Is Growing

Overall, the private secondaries market has grown both in the number of dedicated funds and in the amount of capital raised. Yet for real estate, the secondaries market is still in its early years.

Fundraising for real estate secondaries continues to trail private equity secondaries by a significant margin (see Figure 3). In 2024, real estate secondaries strategies raised $41 billion aggregated over a 10-year period, while private equity saw $431 billion.³

Figure 3: Compared With Private Equity, the Real Estate Secondaries Market Has Room to Grow

(10-Year Aggregate Capital Raised)

Source: Preqin as of March 23, 2025.

Zooming in on the real estate sector, however, it’s clear that the market expansion is well underway—10-year aggregate capital raising has nearly doubled since 2018 (see Figure 4).

Figure 4: 10-Year Aggregate Capital Raising for RE Secondaries Has Effectively Doubled

Source: Preqin, as of March 23, 2025.

Looking ahead, we believe real estate secondaries fundraising is likely to continue to grow for three reasons.

First, real estate allocations have plateaued

In recent years, allocations to real estate as an investment asset class have plateaued, which we believe bodes well for both LP- and GP-led secondaries (see Figure 5).

We expect many investors will turn to traditional LP-led secondaries as a portfolio management solution aimed at reducing exposure to underperforming or non-preferred managers. We also expect GP-led secondary strategies to benefit as limited allocations are likely to hamper fundraising ability for smaller and midsize GPs, forcing them to turn to alternative capital providers, such as GP-led secondaries, to retain their best assets and remain in business.

Figure 5: Allocations to Real Estate Have Flatlined Since 2018

Source: Hodes Weill & Associates 2024 Report.

Second, fund maturities are approaching, and redemption queues have shrunk

We expect that raising successive funds will become more challenging for small to midsize GPs as LPs continue to consolidate manager relationships and make fewer commitments.

GP-led secondary strategies are likely to see more opportunities to recapitalize small to midsize managers’ portfolios and investments. A growing share of real estate funds with assets of $500 million and below are bumping up against fund maturities over the next few years (~$171 billion among ~1,700 funds),⁴ providing ripe ground for GP-led transaction activity as managers look to hold onto their winners for longer (see Figure 6).

Figure 6: A High Volume of Small to Midsize Real Estate Funds Are Coming to Maturity

Source: Preqin as of November 5, 2024.

Furthermore, in the U.S. alone, open-end real estate funds have seen over $50 billion of redemptions.⁵ Many of these funds are now pursuing liquidity solutions to clear these redemption queues. We expect many of these GPs to be forced to sell assets—often their highest-quality and most liquid—through secondary transactions to provide the needed liquidity.

When posed with a choice, would you sell your winners to find capital, or find capital to keep your winners?

Third, the traditional value-add allocator model is evolving

Several diversified value-add equity managers—who partnered with local operators—have underperformed in recent years due to sector-related challenges (namely office and retail) and the rapid increase in interest rates. Local operators and smaller single-sector GPs, who previously relied on larger value-add allocator funds and/or individual investors for capital, now need alternative sources to recapitalize existing investments and fund new acquisitions (see Figure 7).

We expect these dynamics to benefit established GP-led secondaries fund managers—particularly those who can offer capital, duration and information solutions.

Figure 7: Fewer Diversified Value-Add Allocator Dollars to Go Around

Source: Preqin.

Leveraging the GP-Led Opportunity

When it comes to portfolio allocation, some investors may assume that all secondaries transactions belong in a stand-alone secondaries allocation bucket. However, we believe that GP capital solutions are better suited to an investor’s non-core value-add allocation.

Strategies that target GP capital solutions allow investors to partner with GPs to provide capital, duration and information solutions so that GPs can execute business plans at their best assets. And unlike LP-led secondaries, GP capital solutions don’t rely solely on entry discounts to drive returns and allow for additional upside potential through operational value-add. They also allow for control rights, access to all information, underwriting, and full legal and financial due diligence. All this suggests that portfolios might be better served by including GP capital solutions in a value-add equity bucket.

As the GP-led market continues to expand, GPs are becoming more selective in who they team up with. They’re looking for partners that will provide not only capital but also complementary operational and capital markets capabilities as they complete business plans.

In short, we believe GP-led secondaries strategies present a compelling opportunity, particularly strategies that have clear active return levers and are led by managers who have a demonstrated ability to generate value through operational expertise.

^Endnotes:

^{1. Preqin.}
^{2. Preqin.}
^{3. Preqin.}
^{4. Preqin.}
^{5. Townsend, U.S. open-ended funds, Q4 2023.}

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