LP transfer (secondary)
Also called LP secondary, secondary sale of a fund interest, assignment of interest.
An LP transfer is the assignment of a limited partner's interest in a fund, including its capital account and remaining unfunded commitment, to another investor. Under most limited partnership agreements it requires the general partner's consent and is documented by a transfer agreement under which the buyer is admitted as a substitute limited partner.
Example
An LP committed $10M, has funded $7M, and its capital account stands at $9M at the last quarter end, with $3M unfunded. A buyer agrees to pay 85% of NAV, $7.65M, and to assume the $3M unfunded commitment. The GP consents, runs KYC on the buyer and confirms it is accredited and, for a 3(c)(7) fund, a qualified purchaser. On the effective date the administrator moves the $9M capital account and the $3M unfunded commitment from seller to buyer in the register. A $400,000 distribution declared before the effective date but paid after it goes to whoever the transfer agreement says, which is why that clause is read twice.
Confused with
GP-led secondary. The fund sells assets to a new vehicle, often a continuation fund, and LPs choose to cash out or roll. An LP transfer changes who holds an interest; the fund and its assets do not change.
Defaulting LP. A forced sale on the GP's terms. A transfer is voluntary, at a price the seller negotiates.
In practice
The GP's consent is not a formality. The LPA restricts transfers so the fund is not treated as a publicly traded partnership for tax, stays under its investor count and keeps unwanted holders out, and it often gives other LPs or the GP a right of first refusal. Side letter terms do not move with the interest unless the GP agrees. Transfer fees, legal costs and a quarter-end effective date are the norm.