Evercore Private Capital Advisory (PCA) First Round Practice Test

General Partners (GPs) may consider selling secondary assets primarily to find replacement Limited Partners when under pressure to liquidate. In private equity, the secondary market allows GPs to sell their stakes in investments to other investors, which can help them address liquidity needs or shift focus. If a GP faces pressure to liquidate a position—perhaps due to poor performance or market conditions—they might seek to bring in new investors to relieve financial burdens and stabilize the fund. By doing this, GPs can free up capital and potentially maintain or enhance their overall investment strategy without completely exiting the market.

This approach can be particularly useful in scenarios where existing Limited Partners require cash distributions or need to divest their positions. By facilitating secondary transactions, GPs can effectively manage the capital structure of their funds and ensure they can continue to operate and pursue additional investment opportunities.

Other motivations, while they may reflect certain aspects of investment strategy, do not align as closely with the immediate pressures and responsibilities faced by GPs in managing their funds and relations with Limited Partners. Thus, looking for replacements through secondary sales can strategically realign and support the ongoing viability of the fund.