Real estate secondaries were once a niche corner of the market, largely limited to straightforward transfers of limited partner (LP) interests. Today, they’ve evolved into a dynamic space driven by general partner (GP)-led re-capitalizations, continuation funds and hybrid deal structures.
For investors, secondaries offer a flexible route to re-balance portfolios and unlock liquidity without disrupting fund strategies. To complement these transactions, representations and warranties (R&W) insurance is stepping in as a powerful risk transfer tool, helping investors navigate this fast-moving landscape with greater confidence.
The evolving landscape
Traditionally, selling an LP stake meant cashing out and stepping away from the investment. Now, sellers can choose to roll their position into a new vehicle, invite new capital alongside existing investors, or even partially cash out - all without disrupting the sponsor’s control. This shift has transformed secondaries into a more strategic tool, not just for exits, but for long-term portfolio management.
According to CBRE Investment Management, the real estate secondaries market currently makes up 1–2% of all secondaries activity. However, this could grow to 2–3% of the estimated $1 trillion in unrealized value tied up in private real estate funds and the estimated $816 billion in non-fund structures. This growth is driven by the increasing use of secondaries for liquidity, portfolio management, and accessing high-quality assets.
What’s driving this growth?
- Liquidity needs: LPs seeking mid-fund life exits can find willing buyers without forcing sponsors to liquidate assets prematurely.
- Portfolio optimization: Buyers can cherry-pick high-quality assets from seasoned sponsors at potentially more attractive pricing.
- Continuity for sponsors: GP-led deals let sponsors hold on to their best-performing assets, backed by fresh capital.
Navigating the complexities
Real estate secondary transactions often involve intricate structures, multiple stakeholders, and diverse asset types. These complexities introduce a range of risks that R&W insurance can effectively mitigate including:
- Title and ownership: Ensuring clear and undisputed ownership of assets, especially in multi-jurisdictional portfolios.
- Lease agreements: Validating the accuracy and enforceability of lease terms, tenant obligations and rent rolls.
- Regulatory compliance: Confirming adherence to zoning laws, environmental regulations, and other statutory requirements.
- Tax liabilities: Identifying and addressing potential tax exposures arising from complex holding structures.
- Litigation risks: Assessing ongoing or potential legal disputes that could impact asset value or operations.
- Secondaries-specific risks: Coverage for the excluded obligations indemnity, fund governance and LP transfer formalities.
CFC's R&W insurance policies are designed to address these risks, providing coverage that aligns with the specific nuances of each transaction.
3 ways insurance strengthens security
In an environment characterised by interest rate fluctuations and evolving investor strategies, the ability to execute transactions with confidence is paramount. R&W insurance from CFC offers:
- Risk mitigation: Shifting specific transaction risks to an insurer reducing the potential of post-closing disputes and create a smoother transaction.
- Deal facilitation: Streamlining negotiations by providing a safety net for both buyers and sellers.
- Investor confidence: Enhancing the attractiveness of deals to potential investors by demonstrating proactive risk management.
Why this matters - and now more than ever
Secondaries are reshaping real estate investing, offering liquidity and customized solutions for today’s dynamic market. At CFC, our tailored R&W insurance is designed to bridge the protection gap, catering for the unique complexities of real estate secondary transactions.
If you’re exploring a secondary transaction and want to know how insurance can accelerate your strategy, speak to our team. CFC’s market-leading solutions are here to help you seamlessly manage risk and unlock liquidity.
