Introduction
A secondary bid is a percentage, and every percentage depends on its denominator. In an LP-led sale the denominator is net asset value (NAV) at a reference date that is usually months old by the time anyone signs, so the quoted number describes neither the cash the selling limited partner (LP) receives at closing nor the full capital the buyer commits. It is a convention for comparing bids, not a measure of what changes hands.
The arithmetic behind the percentage also runs backward. A buyer does not start from NAV and subtract a discount: it forecasts the cash each fund will distribute and call, discounts those flows at its target return, and only then divides the result by NAV so that bids line up. The private capital advisory (PCA) banker working for the seller has to read the number in both directions, forward from a percentage to closing cash, and backward from a percentage to the assumptions about unfunded commitments, timing, and return that produced it. The four conceptual components of the discount, from stale marks to the credibility of the general partner's (GP's) valuations, are set out in how fund NAV is set; this article turns them into money.
What a Percentage-of-NAV Bid Actually Buys
A bid of 85 means 85% of the seller's share of fund NAV at the reference date, fund by fund. That NAV is the GP's fair-value mark of the remaining portfolio, reported net of accrued carried interest, so the buyer is already bidding on a figure after the GP's share of unrealized gains, as the fees, carry, and waterfall article explains. Three things sit outside the percentage: cash that moved between the reference date and closing, the unfunded commitment the buyer takes over, and any change in value after the reference date.
- Discount to NAV
The gap between the price a secondary buyer pays for a fund interest and the NAV reported for that interest at the agreed reference date, expressed as a percentage of that NAV. A bid of 85% is a 15% discount. It is quoted before adjustments for cash flows after the reference date and before the buyer's obligation to fund any remaining commitment.
The Purchase-Agreement Convention
The purchase and sale agreement (PSA) turns the percentage into cash. Under the usual convention, which VP Bank's fund solutions business describes in its guide to how private equity secondaries work, the reference date fixes how cash flows before closing are settled: the seller is normally compensated for capital calls it funds after that date, while distributions it receives are retained by the seller and reduce the price payable. Changes in value after the reference date move no money at all. They simply belong to the buyer.
Here is the bid percentage, the capital calls the seller has paid since the reference date, and the distributions it has received. Calls and distributions settle dollar for dollar, at 100 cents, even though the NAV itself was bought at a discount. Individual agreements vary on details such as recallable distributions and interests that close late, and the article on transfer mechanics and the purchase agreement covers the document clause by clause.
From Reference Date to Closing: A Worked Example
Take an interest with $80 million of NAV at a 31 December reference date and $20 million of unfunded commitment. The winning bid is 85%. Closing takes place the following September, and in between the GP calls $6 million, which the seller pays, and distributes $10 million, which the seller receives.
| Step | Amount | What it reflects |
|---|---|---|
| Reference NAV | $80m | The GP's 31 December mark, net of accrued carry |
| Bid at 85% | $68m | The negotiated price for that NAV |
| Calls paid by the seller since the reference date | $6m added | Reimburses capital the seller advanced |
| Distributions received by the seller | $10m deducted | Cash the seller already holds |
| Cash paid at closing | $64m | What the seller receives from the buyer |
| Unfunded commitment the buyer assumes | $14m | The original $20m less the $6m already called |
The adjustments change the timing of the seller's cash, not its economics. It paid $6 million in and took $10 million out before closing, so its net proceeds across the whole period are $68 million, exactly the bid on the reference NAV. The buyer holds the mirror-image position: it pays $64 million at closing, owns an interest whose NAV before any change in value is $76 million (80 plus 6 less 10), and owes up to $14 million more as the GP calls it.
Unfunded Commitments: Why the Same Percentage Is Not the Same Price
The percentage applies only to NAV. The unfunded commitment transfers with the interest and is paid in at full value as the GP calls it, so the headline bid says nothing about the second cheque, which for a young fund can be the larger one. Two interests bid at the same percentage can therefore cost a buyer very different amounts per dollar of exposure, and a seller comparing them on the headline alone misreads both.
Two Interests Bid at 90%
Consider two interests, X and Y, each with $30 million of reference NAV and each bid at 90%. X sits in a mature fund with $2 million still uncalled; Y sits in a younger one with $15 million uncalled.
| Interest X | Interest Y | |
|---|---|---|
| Reference NAV | $30m | $30m |
| Unfunded commitment | $2m | $15m |
| Price at 90% | $27m | $27m |
| Buyer's total capital (price plus unfunded) | $29m | $42m |
| Dollar discount | $3m | $3m |
| Discount as a share of total capital | 10.3% | 7.1% |
The $3 million discount is the buyer's whole margin on existing assets in both cases, but on Y it has to cushion $42 million of capital rather than $29 million, because newly called money buys investments at cost with no discount attached. To give the buyer of Y the same cushion per dollar as X, the bid on Y would have to fall to about 86% of NAV. That is why a younger interest with a large unfunded balance can draw a lower headline than an older one without any doubt about its marks, and why an advisor shows the unfunded-to-NAV ratio beside every fund's price rather than in a footnote.
When Calls Arrive and What It Costs to Wait for Them
Size is only half of it. The buyer also prices call timing and the cost of keeping capital ready. A commitment likely to be called within a year for follow-on investments in known companies is close to extra NAV bought at par; one that may be drawn over four years for new deals is a blind-pool exposure to investments nobody has seen, carrying fees on capital not yet invested.
Until the calls arrive, the buyer has to hold cash, reserve room in its own fund, or rely on a credit line, and each carries a cost that reduces what it can pay today. Buyers whose capital is expensive to hold idle, such as evergreen vehicles that also manage investor redemptions, feel that cost most. How calls are scheduled and funded from the LP's side is covered in capital calls, distributions, and the LP cash flow problem.
How a Buyer's Return Target Becomes a Percentage of NAV
Buyers underwrite fund interests to a return, not to a discount. Evercore's 2025 secondary market report found gross buyer return targets for LP-led deals steady in the mid-teens to high teens, anchored to a liquidity horizon of about four years, with 1.5x to 1.7x the most common multiple target for diversified portfolios of 25 or more positions. Those are gross figures, before the buyer's own fund fees and carry. Single positions command a modest return premium in the same survey, because the buyer carries more concentration risk and less predictable exits. The fund-by-fund forecasting behind those targets belongs to how secondary buyers assess a fund interest.
Solving for Price
Once the forecast is set, price is a present value. With the distributions expected in year , the capital calls, and the target return:
Take an illustrative interest with $100 million of reference NAV and $6 million unfunded, which the buyer expects the GP to call at the end of year one. It forecasts distributions of $30 million, $35 million, $40 million, and $30 million over the next four years, $135 million in all. The table shows what that one forecast is worth at different targets and timings.
| Target return | Distribution timing | Implied price | Bid (% of NAV) |
|---|---|---|---|
| 12% | As forecast | $96.9m | 97% |
| 15% | As forecast | $90.8m | 91% |
| 18% | As forecast | $85.3m | 85% |
| 15% | Every distribution one year later | $78.3m | 78% |
Two readings matter for the advisor. First, three points of required return move the bid by roughly six points of NAV in this example, so the buyer with the lowest cost of capital for a given fund usually wins it. Second, distribution timing is at least as powerful: a one-year slip in every payment costs about 12.5 points at the same 15% target, which is why buyers press on exit plans for the largest companies as hard as on the level of the marks. At 91% the buyer puts in $96.8 million, including the call, to receive $135 million, about 1.4x. The target fixes the rate; the multiple follows from how fast the cash comes back, a split explained in IRR versus MOIC versus cash-on-cash.
This is the same logic a financial sponsor uses to decide what it can pay for a company, working back from a required return, the LBO as a valuation method applied to a fund's remaining cash flows instead of one business.
Why Buyers' Costs of Capital Differ
Targets are not uniform, and the spread between buyers is itself a pricing driver. A buyer using acquisition leverage or a deferred payment earns its equity return on less of its own money, so it can bid higher against the same target, the mechanics covered in leverage in secondaries. A buyer under pressure to put new capital to work will accept a lower return than one that is fully invested.
The effect shows up in who wins. Commonfund's head of secondaries, writing in February 2026, cited Evercore data from 2024: buyers that used, or would have used, funds registered under the Investment Company Act of 1940 ('40 Act funds) won about 85% of their deals in Evercore processes, pricing on average 500 basis points above the top competing non-'40 Act buyers. For a seller, a new class of buyer with a lower required return can be worth more than any refinement of the marks.
Fund Traits That Move the Forecast
Everything else a buyer weighs works through the same forecast inputs: how much cash, how soon, and how certain. The traits below are why two funds with identical NAVs carry different forecasts, and they are where an advisor can move a bid with evidence rather than argument.
Fund Quality and the Manager's Record
Commonfund's piece ranks the quality of the underlying assets among the most important determinants of price: higher-quality assets price higher, judged on portfolio company operating metrics and on the credibility of the GP. Part of that record is valuation practice, since two managers can hold similar companies at noticeably different multiples. A manager whose exits have landed at or above prior marks lets the buyer forecast close to NAV; one whose exits have fallen short pushes the buyer to haircut the forecast itself. An advisor who can show realized exits against the preceding marks, fund by fund, is addressing that input directly.
Age, Vintage, and Remaining Duration
Fund age cuts both ways. A young fund has more remaining duration, time in which the GP can still create value, and Commonfund notes that younger portfolios tend to price higher for that reason; it also has more unfunded commitment and a longer wait for cash. An old fund has little left to call and nearer exits, but also a tail of the hardest companies to sell.
The net effect showed in the 2025 averages. In Jefferies' 2025 secondary market review, average LP portfolio pricing fell 200 basis points to 87% of NAV, and Jefferies attributed the decline to an older vintage mix, with buyout portfolios sold averaging a 2016 vintage against 2018 a year earlier, and to a larger share of venture and growth. An average can fall without any fund being repriced, simply because different funds were sold.
Concentration in a Few Companies
A fund whose top three companies hold half its NAV is really a small number of bets, and the buyer underwrites each one almost like a direct investment. Concentration raises the required return, as the single-position premium in Evercore's survey shows, and makes the forecast hinge on one or two exit dates. It also narrows the bidder pool to those who know those companies. Advisors manage it through portfolio construction: a concentrated fund bundled with diversified ones can be priced against a diversified-portfolio target, while a concentrated fund offered alone may clear best with buyers that already hold the same companies through other vehicles.
Fund-Level Leverage: Subscription Lines and NAV Loans
Borrowing inside the fund changes what NAV means. A drawn subscription line is a fund liability already deducted from NAV, but it is repaid by calling LP capital, so an outstanding balance at the reference date signals calls the buyer will fund soon after closing. A NAV loan, secured on the portfolio, sits ahead of the LPs. The Institutional Limited Partners Association (ILPA) notes in its 2024 guidance on NAV-based facilities that a portion of future distributions goes to repay such a facility, that distributions funded by one are often recallable, and that its interest and costs are often charged as partnership expenses.
For a buyer, a levered NAV means a thinner equity layer, a more volatile residual, and distributions that arrive only after the lender is served, all of which lower the bid per dollar of NAV even when the marks are sound. How NAV loans work sets out the product itself.
Deferrals, Competition, and the Market Cycle
Deferred Payments: A Higher Headline, Paid Later
A deferred payment leaves part of the price unpaid until agreed dates after closing, which lets a buyer offer a higher percentage while protecting its own return, since it keeps the deferred cash working until it pays. The same Jefferies review found deferred pricing in about 23% of 2025 LP transactions, improving pricing relative to full-cash deals; in 2022, a year of wide bid-ask gaps, the share was about 35%.
A London-listed sale shows how a headline and a payment schedule interact. In December 2025, HarbourVest Global Private Equity (HVPE) announced the sale of five HarbourVest fund positions, focused on buyout, at 94% of their 30 June 2025 NAV. Net proceeds of $300 million were due in two tranches, $138 million in March 2026 and $162 million in December 2026, adjusted for cash flows up to a 31 March 2026 closing. The sale also cut HVPE's unfunded commitments by $105 million and its fund-level borrowing by $28 million, obligations that moved with the interests. The reference date was nine months before closing, and more than half the price was due nine months after it.
How to choose the rate for that comparison, and what security makes a deferral acceptable, is the subject of deferred payments and structured pricing tools. For pricing, the point is that a deferral is a financing term attached to the price; it does not change what the funds are worth.
Competition and the Cycle
The same fund can be worth several points more or less depending on the year it is sold, because buyer capital and exit visibility set the market-wide level. Jefferies counted about $327 billion of dedicated secondary capital in 2025, and roughly $477 billion including traditional LPs and leverage, alongside 87% average pricing and buyout interests at 92%. For 2022 the same review series put average LP pricing at 81% of NAV, 1,100 basis points below 2021, as buyers doubted marks that had not caught up with falling public markets and expected exits to slow.
Nothing in the funds' contractual terms changed between those years. The forecast timing, the buyers' costs of capital, and their confidence in NAV did, and the percentage moved with them. Differences between strategies follow the same inputs, from buyout near par to venture at deep discounts, and are compared in pricing by strategy.
Hold Value: Where the Seller's Price Meets the Buyer's
A bid is good or bad only against the seller's alternative, which is to keep the interest. The seller's hold value is the same forecast discounted at the seller's own cost of capital. A pension that discounts the illustrative forecast above at an assumed 8% values the interest at about 106% of NAV, while the 15% buyer pays 91%. The trade still makes sense when the seller's reason to sell, an overallocation, a budget gap, a manager it wants to leave, is worth more than those 15 points, which is why the demand side of secondaries matters to price as much as the funds do.
- Bid-Ask Spread (Secondaries)
The gap between the price sellers will accept for fund interests, anchored to reported NAV and their own hold value, and the price buyers will pay, set by their forecasts and target returns. A wide spread slows LP-led volume because sellers hold rather than trade; deferrals, structured sales, and competitive processes are common ways to narrow it.
The advisor's work sits inside that spread, and mostly on the buyer's side of it. A seller's discount rate is its own, but the buyer's is not fixed: each fund in a portfolio has a best-placed bidder, the one whose required return is lowest because it already holds the GP's funds, runs cheaper capital, or needs to deploy. Finding that bidder fund by fund moves price more than any argument about the marks, and it explains why the same percentage can be a sound sale for one institution and a poor one for another. In an interview walkthrough of an LP portfolio sale and the discount-to-NAV math, that is the distinction worth drawing: the percentage is the buyer's answer, and whether it is a good price depends on the seller's own cost of holding.
