Introduction
A secondary buyer handed a limited partner (LP) portfolio of thirty funds does not diligence thirty funds. It spends most of its hours on the few dozen companies that carry most of the net asset value (NAV), prices everything else by rule, and turns the result into one number per fund. Lawrence Shoykhet of Commonfund's private equity team, describing the method in November 2025, calls it a bottoms-up analysis: each company's growth, leverage, and holding valuation, tested against comparables and precedents, turned into a forecast exit value, aggregated to the fund, and priced to a specific return.
That allocation of attention is the part of a buyer's work the seller's advisor most needs to understand. A private capital advisory (PCA) team that knows which documents a bidder will request, which holdings it will diligence line by line, how it treats the unfunded commitment, and which exit dates its price hangs on can prepare answers before the questions arrive, and can tell when a low bid reflects missing information rather than a different view of value.
What a Buyer Asks For, and Why Each Document Matters
Underwriting starts with a document request mixing the seller's own records with the general partner's (GP's) reporting, and each item answers a question about cash: how much the interest will pay, when, and what it will still cost. The process around the request is laid out in the LP portfolio sale process; what matters here is why a buyer wants each piece and what it cannot learn from it.
| Document | What the buyer uses it for | Common gap |
|---|---|---|
| Capital account statement | Reconciles NAV, paid-in capital, distributions, and unfunded balance | Shows the interest, not the companies |
| Cash flow history | Shows how fast the GP has called capital and returned cash | Past pace may not hold in a slower exit market |
| GP quarterly reports | Holdings at cost and fair value, commentary, fund-level debt | Depth and timeliness vary by manager |
| Company financials | Trading, net debt, and results against budget for large holdings | Often released only with the GP's consent |
| Partnership agreement and side letters | Remaining term, commitment period, transfer rules | Side-letter rights may not pass to the buyer |
The Fund-Level Record: Statements and Cash Flow History
The capital account statement ties the quoted NAV to paid-in capital, distributions, and the remaining commitment, and a buyer reconciles it against the GP's quarterly report before trusting either. The cash flow history, quarter by quarter since the first call, is often more revealing: it shows how quickly the GP has turned marks into cash, how much has been recalled, and whether recent distributions came from exits or from fund-level borrowing. A fund that kept distributing through a slow exit market has earned some credibility for the next forecast; one whose distributions stopped two years ago has not.
Company Data and the GP's Valuation Method
Company-level information is where diligence becomes underwriting. GP reports usually list each holding at cost and fair value, but the operating detail behind a mark varies widely between managers. The Institutional Limited Partners Association (ILPA) released a Portfolio Company Metrics Template in March 2019 and is refreshing it, with the final version scheduled for January 2027, after an increasing number of LPs cited portfolio company data as an area needing more transparency. If a fund's own investors find company reporting uneven, a prospective buyer, not yet an investor at all, usually sees less.
Buyers also ask how the marks were produced: the valuation methodology, the peer sets, and any third-party review. The aim is to learn in which direction the marks are most likely to be wrong.
Why Data Access Differs From GP to GP
What a buyer receives depends on the GP more than on the seller. Many limited partnership agreements (LPAs) restrict what an LP may disclose about portfolio companies without the manager's consent, so a seller can share its own statements but needs the GP's agreement to release company financials. Some GPs give prospective buyers detailed packs under a confidentiality undertaking; others release only the fund-level report. The data book described in the PCA workstream map has to record, fund by fund, which level of information each bidder will get.
Triage: Company-Level Work for the Top Holdings, Rules for the Tail
A portfolio of dozens of funds can look through to hundreds of companies, and no buyer forecasts each one. Triage decides where the diligence hours go, and the work follows an order:
Consolidate the look-through
Map every fund's holdings into one list, adding up exposure where a company sits in several funds.
Rank by share of NAV
Sort companies by their share of the interest's NAV and find where the cumulative share covers most of the value.
Underwrite the top holdings
Form a company-by-company view of exit value and timing for the largest positions.
Price the tail by rule
Apply fund-level assumptions from the GP's record and the buyer's own data to everything else.
Add the unfunded and fund-level items
Forecast calls, fees, and fund debt, then price the combined cash flows at the target return.
Where the line falls is a judgment about the marginal value of diligence. In an illustrative portfolio where 25 companies make up 60% of NAV, a full forecast for the 26th might move the price by a fraction of a point; in a fund where three companies hold half the NAV, the top of the list is effectively the whole bid. The first step matters because many LP portfolios hold one company several times, through a main fund, a co-investment vehicle, and another manager's fund.
- Look-Through Analysis (Secondaries)
The practice of valuing a fund interest by looking past the fund to the individual portfolio companies it holds, combining the buyer's share of each company across every fund in the portfolio. It shows concentration, overlap with the buyer's existing holdings, and which companies drive the price, rather than treating each fund's NAV as a single number.
Look-through also exposes overlap with the buyer's own book. A buyer already holding a company elsewhere may want more of it or be at its concentration limit, so two bidders can price one fund differently for reasons unrelated to the fund.
Rolling Each Large Mark Forward
For each top holding, the buyer starts from the GP's mark at the reference date and asks what has happened since. Listed peers may have re-rated, the company may have reported new results, and known events such as a refinancing, an add-on, a down round, or a signed sale may have changed the picture. The roll-forward reapplies the GP's own inputs (the peers, the calibrated discount, the net debt) to newer data, so the buyer can see whether the mark would have risen or fallen by today. The fair-value mechanics behind it are in how fund NAV is set.
Exit Value, Exit Route, and the GP's Record
The price depends on what each company will fetch at exit and when. The buyer forms its own exit value from comparables and precedent transactions, then asks who would pay it, whether a strategic acquirer, another sponsor, or public investors, the routes compared in private equity exit strategies. The GP's history is evidence too: a manager whose exits landed at or above the preceding marks earns a forecast close to NAV, and the realized record in a fund's distributions and track record is where a buyer checks that.
Leverage also shapes the downside: debt maturing before the likely exit may force fresh equity or a costlier refinancing. And the exit need not be a sale. A GP may move a favored company into a continuation vehicle (CV), handing the buyer, by then an LP, a sell-or-roll election at a price set by someone else. Asking the GP how it intends to exit each top holding is part of the underwriting, not a courtesy.
Pricing the Tail by Rule
Everything below the cut-off is priced top-down: how the GP's past exits compared with their marks, how long similar companies of that vintage and strategy took to sell, and a haircut for holdings still at cost or recently written up. Buyers with large primary programs or long secondary histories draw these assumptions from their own records, one source of the information edge discussed below.
- Bottom-Up Underwriting (Secondaries)
Pricing a fund interest by forecasting exit value and timing company by company for the largest holdings, then adding the rest of the portfolio, the unfunded commitment, and fund-level costs. It contrasts with top-down pricing, which applies fund-level or statistical assumptions to NAV without examining individual companies; most buyers combine the two.
The split matters to the seller. A surprise in the tail, such as one small company written off, rarely moves a bid; a surprise in a top holding moves it at once, in every fund that holds the company.
Remaining Commitments: What the Unfunded Will Be Called For
The unfunded commitment transfers with the interest, and the buyer must judge not only how much the GP will call but what the money will buy. A called dollar goes in at full value, with no discount, so its worth depends on its use:
- New platform investments, possible only while the commitment period runs, in companies nobody has seen.
- Follow-ons and add-ons in existing companies, underwritten together with the holding they support.
- Management fees and fund expenses, which buy no asset and dilute the return on everything else.
- Reserves that may never be drawn, common late in a fund's life.
A follow-on into a top holding the buyer likes is close to buying more of that company at cost; a fee call is a pure cost; a new deal is a bet on the GP's future choices. Funds typically stop new investments after the commitment period while still calling for follow-ons, fees, and expenses, and the limited partnership agreement article sets out the clauses that decide which uses remain open.
- Blind Pool Risk
The risk of committing capital that will be invested in assets not yet identified, relying entirely on the manager's future choices. In a secondary, it attaches to the part of an unfunded commitment likely to be called for new investments, which the buyer cannot diligence and must price on its view of the GP.
The mix shifts with age. Early in a fund most of the unfunded is new-deal capacity; late in its life it is mostly reserves, some never drawn. Buyers check how fully the GP drew its earlier funds and how much of the reserve is earmarked for named companies, since an uncalled commitment costs nothing yet inflates headline exposure, while recallable distributions add to the balance a buyer inherits. How the unfunded changes the price per dollar of NAV is worked through in pricing LP interests.
Distribution Timing, Scenarios, and What Breaks a Bid
The last input turns views into a price: when each dollar comes back. A buyer builds a base case from its own exit values and dates, a downside case in which exits slip and multiples compress, and often an upside case for an early sale of a strong company, the discipline of scenario analysis in any valuation. The bid has to hold across them: the base case should clear the target return, and the downside should not lose money.
Base, Downside, and Upside Cases in Words
Adams Street's secondaries team wrote in January 2024 that bottom-up underwriting combined with exhaustive asset reviews gives insight into exit timing and a fund's duration profile and liquidity pattern. The cases differ in dates as much as in values, because the buyer earns its return only as cash arrives. Duration is the variable the cases are built around, and the one where GP evidence, such as a signed sale, a launched process, or a refinancing deadline, carries the most weight.
When One Company Carries the Bid
The effect is sharpest when one company dominates. Take an illustrative interest in a mature, fully called fund with $120 million of reference NAV, of which Company A accounts for $48 million. The buyer expects the other $72 million of NAV to return $84 million in four equal annual instalments, and its share of Company A's sale to bring $60 million, a quarter above the mark. At a 16% target return the rest of the portfolio is worth about $58.8 million today whatever Company A does, so the bid turns on one date:
| Buyer's view of Company A | Company A today | Rest today | Implied price | Bid (% of NAV) |
|---|---|---|---|---|
| Sold in year 2 for $60m | $44.6m | $58.8m | $103.4m | 86% |
| Sold in year 3 for $60m | $38.4m | $58.8m | $97.2m | 81% |
| Sold in year 4 for $60m | $33.1m | $58.8m | $91.9m | 77% |
| Sold in year 4 at the $48m mark | $26.5m | $58.8m | $85.3m | 71% |
Moving one exit from year two to year four takes nine points off the bid for the whole interest, although 60% of the NAV was never re-underwritten, and valuing Company A at its mark takes six more. For the seller's advisor, evidence on the dominant exit (a sale process under way, the GP's timetable, an approach from a buyer) is worth more than any detail on the tail.
What Breaks a Bid
Some findings do more than move the price; they end a buyer's interest in a fund or reopen the whole bid:
- A material write-down in a top holding after the reference date, which the buyer inherits.
- Refused information on a company carrying a large share of NAV, leaving the price resting on a guess.
- Unfunded exposure larger than it looked, through recallable distributions or an extended commitment period.
- Fund-level debt or guarantees ranking ahead of the LPs that were not obvious from the reported NAV.
Each is a fact the seller's side can often establish before launch.
Why a Discount to NAV Is Not a Day-One Gain
A purchase at 85% of NAV looks like fifteen points of profit on the first day. The buyer's own underwriting shows why that reading is wrong: the discount is measured against the GP's mark, while the return is measured against the cash eventually received, and the two can diverge either way.
The Mark May Be Wrong, and Cash Takes Time
If the buyer's exit values sum to less than NAV, a discount can still be an overpayment: paying 85 for companies that will realize 80 is a loss. Even when the mark proves right, the return accrues only as distributions arrive; in the Company A example, the 86% bidder earns its target only if the sale happens in year two. A buyer that carries the interest at reported NAV records a write-up after purchase, but a write-up is not cash and reverses if exits disappoint. Mature assets can soften the early drag on returns without guaranteeing early cash, as secondaries fund returns and the J-curve explains.
Asset Quality, Transaction Pressure, and Growth After Closing
Coller Capital's Boris Maeder drew a similar line in a July 2026 column, separating asset-quality discounts, which reflect performance, certainty of exit, and growth potential, from discounts created by the transaction, such as a seller's timing pressure or limited buyer demand. Discounts, Maeder concluded, are a genuine feature of secondaries returns but not the whole story, which is why an advisor markets a portfolio on its companies rather than on its discount.
The distinction matters most between two kinds of secondary. A mature LP portfolio returns cash from companies the GP already owns, so the forecast is mostly about exit dates. A continuation vehicle often brings fresh capital for further growth, and a buyer may receive little cash for years whatever its entry price, the different underwriting covered in how buyers assess a continuation vehicle.
How the Advisor Uses the Buyer's Workflow
Much of what a buyer takes off for uncertainty, a diligence discount as distinct from its return target, can be addressed before launch, and the advisor's influence lies in knowing which uncertainty each bidder faces.
Anticipating the Questions and Narrowing the Diligence Discount
The buyer's triage is predictable, so the advisor can run it first. Consolidating the look-through and ranking companies by NAV shows which questions will decide the bid: recent trading at each large company, its debt maturities, the GP's exit plan, and the uses of the unfunded. The advisor then asks GPs early for permission to share company data on those holdings, with a clear list of who will see it, so that buyers price the companies rather than the gaps. A GP relationship handled before launch is far easier than a request that surprises the manager in the second round.
Informed Buyers and Uninformed Buyers
Information is not shared evenly. Buyers already in a fund through primary or earlier secondary positions hold years of the GP's reporting and know its deal team; newcomers have only the data room. Using data from a large intermediary, Nadauld, Sensoy, Vorkink, and Weisbach found that discounts to NAV were larger for smaller funds and for smaller transactions, where information costs per dollar invested are higher, with intermediaries sharing the hard information and buyers relying on the GP for the rest.
Where one informed buyer dominates, levelling the information is what creates competition; where several already know the GP, the priority is keeping each of them in the process. The secondaries buyer universe sorts likely bidders by mandate and by relationship with the managers being sold.
The same paper carries a caution for sellers. Its authors note that market participants sometimes argue the asymmetry runs toward the buyer, since a specialist secondaries fund studies the funds it buys while an institution holding dozens of funds may know each company less well. The advisor's last protection is its own shadow underwriting: an estimate, before launch, of what a well-informed buyer will conclude about the top holdings, the unfunded, and the exit dates. A seller that has seen it can tell a low bid from a fair one, and is no longer the least-informed party at its own sale.
