A strip sale is a secondary market transaction where a limited partner sells interests in multiple funds as a single portfolio package. Rather than marketing and negotiating the sale of each fund position individually, the seller bundles them together and offers the entire strip to one buyer or a small consortium. The term comes from the idea of selling a “strip” across a portfolio, capturing exposure to multiple GPs, vintages, and strategies in one transaction.
Why Sellers Choose Strip Sales
The primary motivation is efficiency. An institutional investor with positions in 30 or 40 private funds who needs to reduce their allocation faces a choice: run 30 separate bilateral negotiations (each requiring its own diligence, pricing, and GP consent process) or bundle the portfolio and execute a single transaction. The strip sale reduces time, legal costs, and operational complexity.
Strip sales also solve a practical pricing problem. Most LP portfolios contain a mix of strong and weak performers. Top-quartile fund positions attract buyer interest easily, but lower-performing or tail-end positions may be difficult to sell individually. In a strip sale, the buyer evaluates the portfolio as a whole. They may accept exposure to less-attractive positions because the blended return across the strip meets their target. The stronger positions subsidize the weaker ones, allowing the seller to achieve a clean exit from the entire portfolio rather than being left holding the unsellable remnants.
How Strip Sales Are Structured
The transaction process typically follows these steps:
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Portfolio preparation. The selling LP compiles a comprehensive data package covering all fund positions in the strip: NAV statements, capital account details, fund administration reports, and fund documents. The quality and completeness of this package significantly impacts buyer confidence and pricing.
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Advisor engagement. For larger strip sales, the seller engages a secondary advisory firm to structure the process, identify buyers, and run the auction. Advisors are particularly valuable for large or complex strips where multiple buyers may need to form a consortium.
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Buyer diligence. Buyers analyze each fund position individually, modeling expected distributions, remaining hold periods, and exit scenarios. They then aggregate these individual models into a portfolio-level return projection and back into a blended price they can pay.
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Pricing and negotiation. The buyer submits a single blended price for the strip, typically expressed as a percentage of total NAV. Pricing may be differentiated by fund at the margin (with specific adjustment schedules), but the headline number is a portfolio-level figure.
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GP consents. The buyer must obtain transfer consent from every GP in the strip. This can be the most time-consuming part of the process, as each GP has their own approval timeline and may have questions about the incoming buyer. Some GPs exercise their right of first refusal (ROFR) to purchase the interest themselves or designate another buyer.
Pricing Dynamics
Strip sale pricing reflects the portfolio’s blended characteristics. A well-diversified strip with mostly performing buyout funds from established GPs will trade at a tighter discount to NAV than a concentrated strip with venture exposure, tail-end funds, or below-average performers.
Unfunded commitments are a key variable. A strip with large remaining unfunded capital calls requires the buyer to set aside additional capital for future deployment, which reduces the price they can pay for the existing NAV. Buyers calculate their total cost of ownership (purchase price plus projected capital calls) and model it against total expected distributions to arrive at their return.
What GPs Should Know
As a fund manager, you may learn that an LP is selling their position in your fund as part of a strip. This is normal portfolio management activity and typically not a reflection of dissatisfaction with your fund. The incoming secondary buyer is often a sophisticated institutional investor who will be a constructive LP. Facilitating a smooth consent process builds goodwill with both the outgoing and incoming investors and supports a healthy secondary market dynamic around your fund platform.
Frequently Asked Questions
Why would an LP sell a strip rather than individual fund positions?
Selling a strip is more efficient than individual sales because the buyer is acquiring a diversified portfolio in a single transaction, which reduces diligence costs per position and improves execution certainty. Strip sales also allow the seller to include weaker-performing funds alongside stronger ones. A buyer may accept certain less-attractive positions within a strip because the overall portfolio blended return meets their target, whereas those weaker positions might be unsellable individually.
How are strip sales priced?
Strip sales are priced on a blended basis across the entire portfolio. The buyer models expected returns for each fund position individually and then calculates a weighted average price that meets their portfolio-level return target. Strong-performing fund positions are priced at tighter discounts, while weaker positions are priced at wider discounts. The seller receives a single blended price, typically expressed as a percentage of aggregate NAV. Blended discounts for large, diversified strips from institutional sellers often range from 5-15% in normal market conditions.
How large are typical strip sale transactions?
Strip sales can range from $50 million for smaller portfolios to multiple billions of dollars for large institutional sellers. The largest strip sales have come from banks exiting private equity due to regulatory requirements, insurance companies rebalancing portfolios, and sovereign wealth funds shifting allocation strategies. Transactions above $500 million often require a consortium of secondary buyers to absorb the volume, and the secondary advisor typically runs a structured auction process.
