A stapled commitment, also called a stapled secondary, is a transaction structure where the purchase of a secondary interest in an existing fund is conditioned on, or linked to, a commitment to the GP’s new primary fund. The buyer acquires a portfolio of seasoned investments at a negotiated discount to net asset value while simultaneously committing fresh capital to the GP’s next vehicle. The two elements are “stapled” together, meaning you cannot get one without accepting the other.
The structure emerged from the intersection of two market dynamics: the growth of the secondary market and the increasing difficulty of primary fundraising. A GP managing a mature fund may have LPs seeking liquidity, either because the fund has exceeded its expected term or because the LP needs to rebalance its portfolio. Simultaneously, the GP may be in the market raising a successor fund. By packaging the secondary sale with a primary commitment, the GP creates a transaction that addresses both needs. The secondary buyer gets access to a portfolio of known assets at a discount. The GP gets a committed LP for the new fund. And the selling LPs get the liquidity they wanted.
The economics work as follows. The secondary buyer acquires the legacy portfolio at a discount to the most recent NAV, typically 5% to 20% depending on portfolio quality and market conditions. This discount compensates for the risk embedded in a portfolio of aging investments and for the requirement to simultaneously commit capital to an unproven new fund. The primary commitment is usually sized as a ratio to the secondary purchase. For example, for every dollar of secondary interest acquired, the buyer might be required to commit one to two dollars to the new fund. The exact ratio depends on the GP’s negotiating leverage and the attractiveness of the secondary portfolio.
Stapled transactions raise legitimate governance questions. The concern is that the GP is using access to the secondary deal as leverage to fill the new fund with capital that might not have been committed on a standalone basis. A secondary buyer whose primary interest was the discounted legacy portfolio may not have the same conviction in the new fund’s strategy. This can create an LP base that is less aligned than one assembled through a traditional fundraise. The Institutional Limited Partners Association (ILPA) has highlighted these concerns, and some institutional LPs have policies against participating in stapled transactions.
For emerging managers raising capital, stapled commitments are less relevant for a debut fund but become a consideration in Fund II or III when there is a predecessor fund portfolio to reference. If you are considering a GP-led secondary or continuation vehicle for your first fund’s remaining assets, the question of whether to staple a Fund II commitment to that process is a strategic decision. The benefit is fundraising efficiency. The risk is signaling to the market that you could not raise Fund II on its own merits. Working with an experienced placement agent and secondary adviser helps navigate the optics and structural complexity.
Frequently Asked Questions
Why do GPs use stapled commitments?
GPs use stapled commitments to solve two problems simultaneously: providing liquidity to LPs in an older fund and raising capital for a new fund. By linking a secondary acquisition to a primary commitment, the GP creates an incentive for secondary buyers to participate in the new fundraise. The secondary buyer gets access to a portfolio they can underwrite at a known discount, and the GP gets anchor capital for the new fund.
What discount do stapled secondary interests typically trade at?
Discounts vary based on portfolio quality, asset age, and market conditions. Stapled secondaries have historically traded at discounts of 5% to 20% to net asset value, though the discount can be wider for older or lower-quality portfolios. The discount compensates the buyer for taking on legacy portfolio risk and for the illiquidity of the stapled primary commitment. In competitive processes, discounts can narrow significantly.
Are stapled commitments controversial?
They can be. Critics argue that stapling creates a conflict of interest because the GP is essentially requiring buyers to commit to a new fund as a condition of accessing the secondary deal. This can inflate fundraising numbers and bring in LPs whose primary interest was the secondary portfolio, not the new fund's strategy. ILPA has flagged concerns about stapled transactions, and some institutional LPs refuse to participate in stapled deals on principle.
