LP Secondaries: Why CFOs Beat NAV Loans on Capital Cost
PJT Park Hill and StepStone compare capital costs across outright LP sales, preferred equity, NAV loans, and CFOs for institutional liquidity.
Inside LPs' growing liquidity toolkit
PJT Park Hill partner Adrian Millan and StepStone Group private equity partner John Kettnich examine the rapid rise of structured partial liquidity solutions in the LP-led secondaries market, including collateralized fund obligations (CFOs), NAV loans, and preferred equity. They break down the portfolio characteristics required for structured liquidity, explain why sluggish distributions and limited dry powder are driving debt-based secondaries, and contrast transaction timelines and economics against traditional portfolio sales.
Key takeaways
- Institutional LP sales carry an implicit cost of capital near 15%, driven by secondary market discounts and forfeited upside. Read more →
- Institutional sellers now run parallel processes, testing outright secondary portfolio sales against structured debt like collateralized fund obligations and NAV loans. Read more →
- Collateralized fund obligations require a minimum portfolio value of $500 million to absorb upfront fixed legal, structuring, and rating agency expenses. Read more →
- Annual private equity distributions dropped from a historical average of 20 percent of prior-year net asset value to roughly 10 percent over the past four years. Read more →
4 articles from this episode
Adrian Millan on Dual-Tracking CFOs Against LP Sales
Adrian Millan explains why LPs run dual tracks comparing cash sales to structured CFO debt, and why rating agencies stretch execution to five months.
Why Most Private Equity Portfolios Fail CFO Structuring
StepStone and PJT explain the $500M scale hurdle and cash flow criteria required to issue collateralized fund obligations.
Private Equity Distributions Dropped to 10 Percent
Distributions fell from 20% to 10% of NAV. StepStone and PJT Park Hill explain how structured secondaries hit $40 billion in 2025.