A secondary sale is when a limited partner sells its interest in a fund it already committed to — its unfunded commitment and its share of what the fund already holds — to another investor, instead of waiting years for the fund to distribute.
Two separate gates have to clear before a secondary sale can close, and they are not the same gate. The first is contractual: a Canadian fund’s own limited partnership agreement — typically built from the Canadianized ILPA LPA template CVCA publishes — will set its own conditions on any transfer, and it is standard drafting practice for that clause to require the general partner’s consent before an assignment takes effect, so a selling LP cannot simply hand its interest to whoever it likes. The second gate is securities law: transferring a fund interest is itself a trade in a security, so the buyer generally has to qualify under one of the prospectus exemptions in National Instrument 45-106 for the transfer to proceed without a prospectus. Most often that means the buyer must itself be an “accredited investor” — an individual with net financial assets over $1,000,000, or net income over $200,000 (or $300,000 combined with a spouse) in each of the two most recent years, or an entity with net assets of at least $5,000,000, among the Instrument’s other categories. Where the buyer is an institution rather than an individual, the Instrument’s “minimum amount investment” exemption is also available: it applies where the buyer is not an individual, purchases as principal, and the interest being acquired has an acquisition cost of at least $150,000 paid in cash.
An LP is eight years into a ten-year fund and wants liquidity rather than waiting for the remaining exits. It approaches a specialist secondary buyer, who agrees to take over both the LP’s unfunded commitment and its existing economic interest at a price negotiated against the fund’s reported net asset value. Before the transfer can close, the buyer confirms in writing that it qualifies as an accredited investor, and the fund’s general partner signs off on the assignment under the LPA’s transfer clause — either step failing stops the sale.
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