What is a benefit of secondary funds for prospective LP buyers?

The correct answer highlights the advantage of investing in more mature funds through secondary funds. Secondary funds typically acquire interests in established private equity funds that have been operating for some time. These funds usually have a track record, allowing prospective limited partners (LPs) to assess performance based on historical data. This maturity can lead to reduced risk since the investments are less speculative compared to those in earlier-stage primary funds, which may not yet have defined performance metrics.

Additionally, these mature funds may already have a significant portion of their investments operational, potentially leading to quicker returns on investment compared to primary funds that are just starting their investment cycles. This risk minimization aspect is attractive to LPs looking to balance their portfolios with more predictable outcomes.

In contrast, the other options present characteristics that are not advantages of secondary funds. Higher fees than primary funds could deter investors, less diversified investments can increase risk, and longer wait for returns is typically seen as a disadvantage. Therefore, the maturity of the funds represented in secondary investments stands as a compelling reason for LPs to consider these opportunities.