Secondary market trade volumes soared to record levels last year, signalling an ongoing and noticeable shift in investor sentiment and portfolio management strategies. A secondary market transaction occurs when an investor buys or sells an existing stake
in a private equity fund, venture capital vehicle, or other alternative asset. Secondaries transactions allow investors to exit positions before the end of a fund’s term, offering liquidity in an otherwise illiquid market. Secondaries are often of particular
interest to investors looking to gain access to high-quality private assets at potentially discounted prices and strategic portfolio diversification.
A significant portion of secondaries transactions can be attributed to the rise in continuation funds General Partner (GP)-led transactions where portfolio assets transfer to a new continuation fund managed by the same GP. This extends the holding period
beyond the original fund’s life, allowing Limited Partners (LPs) to either exit or roll their exposure. Exiting LPs are cashed out using proceeds from new investors, often specialised secondaries funds.
LP-led secondaries, where investors sell existing fund stakes to new investors, are also increasing due to:
- Lack of traditional exits: Slower-than-hoped interest rate cuts and a stalled volume of IPOs and private market deals – both traditional private market exit routes – have led to a large backlog of unsold assets held by funds. In situations where
sponsors are holding on to portfolio investments for longer, seeking to extend the life of funds beyond their original terms and transferring assets into alternate structures, a secondary sale can provide LPs with a return of capital, and more flexibility
in their investment programme.
- Liquidity needs: As investors struggle to realise their investments, concerns over exits have grown, and the alternative sources of liquidity proposed by sponsors are being tested by investors and regulators alike. Institutional investors, in particular,
have increasingly demanded a return of capital. Secondary transactions offer an early exit opportunity for LPs looking to realise profit and obtain a return on their capital early.
- De-risking portfolios: In uncertain economic times, investors are focusing on de-risking their portfolios. Secondary transactions enable them to offload underperforming or non-core investments, reducing risk exposure.
- Hesitation with GP-led solutions. Sponsors that are unable to sell underlying assets or raise new capital have sought to use financing products, such as NAV lending facilities, to fund distributions out of debt. Investors have increasingly questioned
its efficacy as it can result in investors being required to hold and return distributions to repay the facility in the event that the assets are not ultimately realised at NAV. Similarly, questions have been raised over GPs’ use of dividend recapitalisations
to return capital to investors. This model involves GPs issuing debt over the underlying assets of a fund, allowing GPs to return capital to investors but weakening the financial position of those underlying assets.
- Distributions in-kind: A common provision in closed-ended fund agreements permits GPs to distribute assets in-kind to LPs on a winding-up. For investors that cannot, or do not want to, hold direct assets, a secondary sale offers a way
to cash out in advance of that risk materialising.
Market liquidity constraints have also led to greater interest in evergreen funds, traditionally used for liquid assets but increasingly applied to credit, real estate, and private assets.
Lessons from 2008: Are we heading towards a private market bubble?
In 2008, many alternative investors were trapped in illiquid assets and forced to sell at significant discounts. Today, concerns about a private markets bubble are mounting. While secondary markets offer liquidity solutions, investors must remain cautious.
The slowdown in deal activity, increasing use of NAV lending, dividend recapitalisations and underperforming assets held in continuation funds raises questions about whether some GPs are delaying inevitable write-downs rather than executing true exits.
However, key differences exist between now and 2008. The secondary market is more developed, with specialised secondaries funds providing structured exit options. Additionally, the broader investment landscape is more diversified, with private wealth clients
and institutional investors playing a larger role in secondaries activity.
Have investors lost perspective?
Much of the current focus remains on private markets rather than traditional listed investments. While private markets offer long-term growth opportunities, the emphasis on alternatives should not overshadow the benefits of public markets. Liquidity, transparency,
and regulatory oversight remain advantages of public markets, and investors should strike a balance between the two. The risk of over-allocation to illiquid assets, without a clear exit strategy, is a concern that must be managed.
The future of private investments
Private investments are becoming increasingly significant for a range of investors such as family offices and ultra-high-net-worth individuals, often replacing traditional stock and bond allocations. The appeal of long-term growth, reduced volatility compared
to public markets, and access to unique investment opportunities make private markets attractive. However, maintaining liquidity through secondaries and structured exits is essential to avoid being trapped in illiquid assets during market downturns.
The rapid growth of the secondary market underscores its increasing importance in portfolio management. Secondary transactions provide a compelling avenue for diversification and liquidity. However, balancing exposure between private and public assets remains
key for investors. With 2025 poised for stronger deal activity, strategic secondary market participation could unlock long-term value.