In a recent ION Influencers fireside chat, Henry Zhang, Managing Partner at Morningside Capital, provided a firsthand account of how GP-led solutions have evolved from a niche restructuring tool to a core strategy for holding onto “trophy assets.” A pioneer who joined a Canadian pension’s nascent secondary team just before the 2008 crash, Zhang now co-leads a firm at the intersection of two hot trends: single-asset continuation vehicles (CVs) and NAV financing.

His journey from skeptic to specialist offers a unique roadmap for LPs and GPs navigating today’s $200+ billion secondary landscape.

Here are the key topics and takeaways from the discussion.

The Four Eras of GP-Led Secondaries: A Historical Blueprint

Zhang framed the market’s evolution in distinct waves, driven by changing GP motivations:

1. The Spin-Out Era (Mid-2000s): The first wave involved banks and corporates divesting private equity portfolios for regulatory or strategic reasons, using secondaries to fund management buyouts.

2. The Restructuring Era (Post-GFC, ~2011): The Global Financial Crisis created “older vintage funds” with assets stuck beyond their expected life. Secondaries were used to recapitalize these funds, providing LPs with liquidity and giving assets a fresh start—what some called “zombie funds.”

3. The LP Management Era (~2015-2018): Transactions became more varied (multi-asset CVs, strip sales) and were often used to strategically transition legacy LP relationships and refresh a fund’s investor base.

4. The “Trophy Asset” Era (2019-Present): Today’s dominant trend. Top-tier GPs use single-asset continuation vehicles to hold their best-performing companies longer. “Why wouldn’t they?” Zhang asked, noting the desire to continue compounding returns rather than selling to a competitor.

The Alignment Imperative: How to Spot Red Flags in a CV

With sophisticated GPs now routinely using CVs, Zhang stressed that assessing a manager’s true motivation is the most critical part of due diligence.

• Follow the GP’s Capital: Scrutinize the level of GP reinvestment pre- and post-transaction. Is it fresh capital from a new fund, or a rollover of existing economics? “You have to read the footnotes.”

• Context is Everything: Beware of a CV presented after a failed sale process. It may be a “last resort” exit, not a conviction-driven hold.

• Partner with the Right GPs: Alignment issues most often arise with less-established managers who need a CV to sustain their platform or who mistreat existing LPs. “That’s not the type of partners we want to work with.” Focusing on high-quality, reputable GPs mitigates this risk.

The NAV Financing Playbook: Beyond Equity Solutions

Zhang explained how Morningside’s NAV lending business emerged naturally from their goal of providing holistic liquidity solutions.

• The “Money-In” Use Case: Their typical deal involves a mid-market PE fund later in its life with low reserves but clear, accretive follow-on investment opportunities in the portfolio. NAV loans provide the capital without forcing a dilutive equity sale.

• A Broader Client Base: Beyond traditional GPs, users include family offices and institutions with direct PE portfolios that are “tapped out on dry powder.” The key is a high-quality, track-record-backed portfolio to secure the loan.

• The Investor Appeal: For LPs, NAV lending offers a differentiated private credit strategy with strong downside protection and attractive yields, appealing to family offices seeking niche alpha.

The Integrated Future: One-Stop Liquidity Shops?

When asked if the industry is moving toward firms offering both CV equity and NAV debt, Zhang outlined Morningside’s “full suite” philosophy.

• A Holistic Partner: “We like to be able to provide solution at the fund level, at the GP level, or at the LP level, in the form of equity or preferred equity or credit.” This ensures they can meet a counterparty’s specific need.

• Conviction-Driven Investing: Ultimately, both strategies align with what Zhang wants to invest in personally: high-yielding, downside-protected credit (NAV loans) and the “S&P 500 of the private market” (trophy asset CVs). “These are the type of deals that we want to do ourselves.”

Market Outlook and Talent Appeal

• Explosive Growth: Secondary deployment ($200-250B) is now a significant portion of the overall buyout market ($500-800B). Single-asset CVs are a primary growth driver.

• Talent is Flowing In: Once a “cottage industry” met with skepticism, the secondary market is now a large, established field attracting professionals drawn to its complex, capital-rich environment.

Key Takeaways for the Industry:

• For GPs: A CV is not just an exit tool but a strategic option for extending value creation. Transparency and genuine alignment with both new and existing LPs are non-negotiable for maintaining reputation and attracting top secondary capital.

• For LPs (Investing in Funds): Due diligence on secondary/NAV lenders must go beyond their model. Assess their GP relationship depth, alignment-sleuthing skills, and holistic solution set.

• For LPs (Selling in a CV): Scrutinize the GP’s reinvestment, the asset’s history (any failed sales?), and the transaction’s fairness. Your interests should be paramount.

• The Bottom Line: The GP-led market has matured from a solution for problems to a tool for optimizing outcomes. The winners will be those who master the nuances of alignment and can offer the right capital solution at the right point in an asset’s lifecycle.

Key timestamps:

00:06 Introduction to the Fireside Chat
02:42 Transition to GP Led Secondaries
03:14 Formation of Morningside Capital
04:20 Morningside’s Strategies and Focus
09:04 Assessing GP Motivations for Continuation Vehicles
15:02 Introduction to NAV Lending
18:34 The Dual Approach: Continuation Vehicles and NAV Lending
20:48 Market Trends in NAV Lending and Continuation Vehicles
23:06 Attractiveness of the Asset Class for Talent