Deferred Payments
When selling a private equity fund interest, many sellers expect to receive the full purchase price in cash at closing. But in practice, some buyers propose deferred payment structures, where part of the price is paid upfront, and the rest later. For sellers, it’s important to understand why this happens, how common it is, and what it means in practice.
What Are Deferred Payments?
A deferred payment means the buyer pays only a portion of the agreed purchase price at closing, with the balance paid later. The deferred portion is usually tied to a fixed date (e.g. 6 or 12 months later) or sometimes linked to fund distributions.
This structure is not a “discount” in itself. In fact, the headline price is often higher than an all-cash offer, precisely because part of the consideration is delayed.
Why Do Buyers Use Deferrals?
Risk management: Deferring reduces the buyer’s exposure if the portfolio underperforms.
Cash flow alignment: Buyers can match payments with expected fund distributions.
Return enhancement: By paying later, buyers improve their IRR since less capital is tied up upfront.
Example
Let’s assume a fund stake with $9m NAV.
Buyer offers $8m upfront and $1.1m in 12 months, for a total of $9.1m. On paper this is a premium to NAV.
This can work for both sides:
Seller gets more than par ($9.1m vs. $9.0m).
Buyer improves IRR by delaying part of the outflow.
Seller effectively “earns interest” on the deferred portion (e.g. $1.1m vs. $1m = ~10% uplift).
In short: both sides can benefit, provided the structure and counterparties are sound.
How Common Are Deferred Payments?
Deferred payments are not the majority of deals, but they are increasingly used. According to Evercore’s H1 2025 Secondary Market Report, about 4 in 10 transactions involved some form of deferral.
It is worth noting that they are less common in smaller transactions (sub-$20m NAV), where buyers typically pay full cash upfront. Deferrals tend to appear more in larger or more complex deals, especially when portfolios include concentrated positions, pending exits, or unfunded commitments.
Risks for Sellers
While deferred payments can work for both sides, sellers should be aware of the risks involved:
Counterparty risk: You’re effectively giving credit to the buyer. If they face financial difficulties, there’s a risk the deferred portion isn’t paid on time (or at all) albeit this is rare in practice.
Liquidity risk: If your main reason for selling is to raise cash, a deferral may not solve the problem since part of the proceeds is delayed.
Time value of money: $1 million received a year from now is worth less than $1 million today. Unless there’s an “uplift” on the deferred amount, the real value may be lower than it appears.
Contract and enforcement risk: Deferrals tied to fund distributions instead of fixed dates can lead to disputes about timing or amounts. Clear legal terms are essential.
Operational complexity: A deferral means you’re still monitoring the deal after closing, rather than walking away with clean proceeds. This of course can be a distraction, it’s not a fully “clean break”.
Because of these risks, sellers often prefer full cash at closing, even at a slightly lower headline price. But with the right structure, buyer, and uplift, deferrals can still be a sensible solution.
Closing Thoughts
Deferred payments are a tool, not a trick. They can allow sellers to achieve a higher headline price, while giving buyers better cash flow alignment. But they also shift some risk back to the seller.
For many LPs, especially those seeking immediate liquidity or a clean break, an all-cash deal may remain preferable even at a modest discount. For others, particularly if the buyer is strong and the uplift attractive, deferrals can be a pragmatic way to strike a win-win.
At Joran Partners, we help clients weigh these trade-offs and make informed decisions tailored to their needs and circumstances.
Disclaimer: The information in this article is provided for informational purposes only and does not constitute legal, tax, or financial advice. It should not be relied upon as a basis for any investment or transaction. Readers should consult their own professional advisers for advice specific to their circumstances. Joran Partners assumes no responsibility for any actions taken based on this content.