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In light of a slower environment for traditional exits (IPOs, strategic sales, etc.), GPs continue to explore and execute on innovative deal structures in order to balance liquidity needs with strong returns. GP-led secondary transactions are now a key tool in balancing these needs, whether through traditional continuation vehicles or hybrid approaches. One such hybrid approach gaining popularity in 2025 is one in which: (i) a sponsor sells part of its stake in an existing portfolio company to a new fund, (ii) the remainder of its stake is sold to a third-party (often a peer PE fund), and (iii) management rolls a significant equity portion into the go-forward company.
This structure offers partial liquidity, continued exposure to high-performing assets, and strategic alignment between parties with potentially fewer LPAC considerations than a traditional CV.
However, all traditional and hybrid CV transactions introduce new complexities for GPs and investors looking to further align incentives and interests via the use of representations and warranties insurance (RWI) policies. Traditional RWI policies often fall short in addressing the nuances of multi-party transactions, and in early iterations of RWI on GP-led secondaries, representations and warranties were typically “knowledge” qualified, and policies would not scrape that qualification (therefore in practice making breaches and recovery exceedingly rare). The market, led by Atlantic, has responded by tailoring RWI coverage to meet these evolving needs, offering:
- Full coverage for each investor with knowledge exclusions limited to each relevant investor (without imputing knowledge between them);
- Non pro-rated recovery rights (which are otherwise common for minority deals and/or deals with significant rollover) in the event of a claim, neither for a buyer loss nor company loss;
- “Knowledge scrapes” whereby seller knowledge qualifications for certain representations (for example the company financial statements representation on a single asset CV) are deemed deleted for purposes of the policy, significantly enhancing coverage while not requiring transaction agreements to move from customary positions; and
- A clean exit for the selling fund and fresh representations for the acquiring fund and its investors, with policy limits reflecting current valuations.
As these structures gain traction, insurers are adapting, but only a few currently offer the necessary flexibility if negotiated at the outset of an RWI process. For clients considering such transactions, engaging early with specialized insurance advisors can be key to optimizing coverage and mitigating risk.
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