Pricing in LP Secondary Sales
When selling a private fund interest on the secondary market, one of the first questions sellers ask is: “What price will I get?”
Unlike selling a stock, there isn’t a single price flashing on a screen. Secondary pricing is negotiated, and it’s expressed relative to a fund’s NAV (Net Asset Value). Understanding how pricing works (and what drives it) will help you set realistic expectations before you sell.
At Par, Discount, or Premium
When buyers quote a price, they usually describe it as a percentage of NAV:
At Par (100%): You sell your position exactly at the fund’s stated NAV.
Discount (<100%): You sell below NAV. For example, 90% of NAV means a position worth $10m on paper would sell for $9m.
Premium (>100%): You sell above NAV, typically in hot sectors or for very sought-after managers.
Most transactions trade at a discount, since buyers want compensation for risk and illiquidity. Premiums are possible, but rare. Importantly, NAV is not the same as “market value.” NAV is based on valuations reported by the fund’s manager, often quarterly and on a time lag. Buyers look to underwrite and adjust this using a number of factors, which may lead them to very different conclusions relative to the last NAV.
What Drives Pricing
Several factors influence where bids come in:
Quality of the portfolio: Strong underlying companies and balanced exposure tend to trade better than highly concentrated or underperforming funds.
Valuation policy: Some managers are conservative and understate value, others more aggressive. Buyers adjust for this, especially in venture, where start-up valuations can be volatile.
Interest rates and financing: In buyouts in particular, higher borrowing costs can reduce expected exit values and options, pushing buyers to price more cautiously.
Public markets: If listed peers have fallen, buyers may mark down expected valuations, regardless of where the fund last struck NAV.
Supply and demand: Like other private markets, a lot of “dry powder” chasing few deals can push pricing up. If many LPs want to sell at once, discounts tend to deepen.
Fund maturity and visibility:
Early-stage funds (large unfunded commitments, J-curve risk) often trade at wider discounts.
Mid-life funds (capital deployed, portfolio visibility, line-of-sight to exits) tend to trade tighter.
Late-life funds (residual or concentrated assets after main exits) often attract wider discounts unless the remaining positions are clearly near exit or of high quality.
Buyer’s return requirements: Secondary buyers have their own cost of capital. They typically underwrite deals to 1.5–1.9x MOIC/15-25% IRR (PJT Park Hill). The price they pay plays a key factor in them hitting that number, given expected cash flows.
Why Do Discounts Exist?
Other than because the market allows for them, discounts mainly exist because of the math. In a closed-ended fund, cash flows pass through several layers before reaching the end investor:
Gross returns at the company level: Exits or distributions flow into the fund.
Primary fund waterfall: GP fees and carry reduce what limited partners actually receive.
Secondary fund waterfall: When a buyer acquires your stake, those cash flows then pass through their own fund structure, with its fees and carry.
Net return to secondary investors: To deliver acceptable returns (typically ~1.5–1.7x MOIC), the buyer needs to “reshape” the economics of the deal.
The most visible lever is price (discount to NAV), but buyers also rely on other tools like leverage, deferred payments, or structure. Together, these levers ensure that after all layers of fees and carry, the secondary fund’s own investors receive the returns they expect.
Example: $10m Commitment, NAV = $12m
Let’s put some simple numbers on this. For simplicity, let’s focus on MOIC rather than IRR.
An LP committed $10m to a fund, fully drawn and no DPI to date.
The GP reports the position at $12m NAV. Thus, the LP’s current TVPI is 1.2x.
The LP decides to sell its fund interest. After conducting some analysis, a prospective buyer estimates the portfolio to return a further 1.4x from here:
$12m NAV → $16.8m gross distributions.
After fund costs (fees and carry), let’s assume $15m net to that LP.
Now compare pricing:
At Par ($12m): Buyer invests $12m → gets $15m = 1.25x MOIC. Too low.
At 88% of NAV ($10.5m): Buyer invests $10.5m → gets $15m = 1.43x MOIC. Better, but still short.
At 75% of NAV ($9m): Buyer invests $9m → gets $15m = 1.67x MOIC. In the buyer’s target range.
If the secondary fund earns 1.67x MOIC gross, that may net down to an acceptable target (1.5x+) for its LPs after fees and carry. To pay closer to par, the buyer would need to believe there is more upside in the portfolio.
Note: in practice, buyers also model IRR, which factors in the timing of cash flows. For our purposes, we only use MOIC as it illustrates the concept clearly.
Closing Thoughts
Pricing in secondaries is about more than the number printed on a quarterly report. NAV is the starting point, not the finish line.
The final price will reflect the quality of the portfolio, market conditions, the stage of the fund, and the buyer’s return requirements. Discounts aren’t necessarily a judgement on a fund, but they’re a key mechanism buyers use to deliver returns to their own LPs.
At Joran Partners, we help sellers benchmark expected pricing, run competitive processes, and connect with the right buyers.
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.