In a recent ION Influencers fireside chat, Patrick Knechtli, Head of Secondaries at Patria Investments, shared his deep insights into the dynamic world of secondaries and GP-led transactions. With over two decades of experience, Patrick offered a panoramic view of the market’s evolution, current trends, and what lies ahead.

 A Journey Through the Secondary Market

Patrick began by tracing his career from investment banking in London to becoming a pioneer in secondaries—an area that was once a niche but has now grown into a $140 billion market. He highlighted key milestones in the market’s development:

• Early 2000s: Emergence of secondaries post-dotcom bubble, with banks as major sellers.
• Post-GFC Era: Pension funds became dominant sellers.
• Last Decade: Innovation surged, especially in GP-led transactions, alongside the rise of preferred equity, NAV loans, and expansion into real estate, infrastructure, and credit.

The Rise of GP-Led Transactions

COVID-19 was a pivotal moment for GP-led deals. With traditional exits uncertain, GPs turned to continuation funds to unlock liquidity without undervaluing assets. For buyers, these deals offered:

• Access to high-quality, cherry-picked assets
• Opportunities to back top-tier GPs
• A more focused due diligence process during market volatility

 Patria’s Strategy and Edge

Operating in the mid and lower mid-market segments across Europe and the U.S., Patria’s secondary strategy is built on:

• Smaller fund sizes ($450–$1,000 million)
• A mix of LP deals and GP-leds
• Strong GP relationships, with 75% of GP-led deals involving existing partners

Patrick emphasized the importance of repeat business and deep diligence, often tracking GPs and assets for up to a year before investing.

 Due Diligence: Then and Now

Due diligence has matured significantly:

• From ad hoc processes to standardized third-party diligence (financial, legal, tax, commercial)
• Increasing reliance on co-investment teams and external validation
• Focus areas include valuation credibility, growth potential, and most critically, exit visibility

What Investors Want: Exits and Valuations

Investor concerns today are clear:

1. Exits: The top priority, especially as distributions have slowed in recent years.
2. Valuations: Confidence in private equity valuations remains strong despite public market volatility.

Patria has maintained strong DPI by actively managing its portfolio and leveraging both diversified and GP-led deals.

 What’s Next for Secondaries?

Patrick sees continued growth across both traditional and emerging segments:

• Private Credit: Rapidly maturing, with a secondary market now forming.
• Infrastructure: Volatile but promising.
• Private Equity: Still the most consistent in deal volume and innovation.

Key timestamps:

00:07 Introduction to the Fireside Chat
00:37 Background and Role of Patrick Knechtli
01:57 Overview of Patria’s Business
02:55 Evolution of the Secondary Market
04:43 Innovation in GP Led Transactions
05:46 Impact of COVID on Secondary Market Dynamics
08:09 Challenges and Opportunities in GP Led Investments
10:17 Importance of Relationships in Investment
12:09 Evolution of Due Diligence Practices
16:19 Current Investor Concerns and Market Trends
19:24 Future Outlook for Secondary Markets