The Rise of Secondaries: Unlocking Liquidity in Private Markets

Market Scale and Growth

• The global secondary private markets market reached approximately $650 billion in assets under management (AUM), having compounded at a 15% annual growth rate over the last decade.
• Transaction volumes are projected to reach $200 billion in the current year, a dramatic increase from the $40–45 billion range seen 10 years ago.
• The market remains 90% institutional, though retail participation is emerging as a significant growth vector.
  • Retail assets in the sector are currently valued at $40 billion in NAV.
  • Retail segment growth is estimated at 50% organically.
• While historically centered on private equity, the asset mix is diversifying into private credit, private infrastructure, and real estate, though the latter remains small.

Market Drivers and Liquidity Dynamics

• Growth is driven by the necessity to provide liquidity to investors holding long-dated (10–15+ year) illiquid assets prior to natural termination.
• Muted distributions from private equity over the past two years have created a record demand for liquidity solutions.
• The market comprises two primary transaction types:
  • LP-led secondaries: Buying limited partnership interests from investors; currently represents roughly 50% of market volume.
  • GP-led secondaries (Continuation Vehicles): Enabling managers to retain high-performing "trophy" assets beyond fund lifecycles; a growing segment with high acceptance among top-tier managers.
• There is a noted supply-demand imbalance: approximately $200 billion in dry powder exists to meet current transaction volumes, potentially creating attractive risk-reward opportunities.
• Turnover in private equity remains low at roughly 2–2.5%, with even lower rates in private credit and infrastructure, suggesting significant upside if turnover accelerates as asset classes mature.

Structural Shifts and Participant Evolution

• Investors are shifting secondaries from a tactical "starter" tool to a core allocation strategy due to the asset class's balance of risk and return.
• General Partners (GPs) have pivoted from viewing secondaries as operational nuisances to strategic relationship tools; most of the top 200 private equity managers have completed or launched continuation vehicle transactions.
• First-time sellers are entering the market, necessitating a complex, multi-quarter education process regarding portfolio valuation and transaction mechanics.
• Retail entry is expected to provide additional market liquidity and enable more transactions.

Investment Philosophy and Future Outlook

• Investment decisions combine micro-level valuation of underlying private companies with macro-level targets for geography, strategy, and asset mix.
• Secondaries are viewed as a tool to mitigate vintage risk and concentration risk while allowing for faster capital deployment and controlled cash flows.
• Experts assert that secondaries cannot solve underlying poor investment performance; "a bad investment cannot be solved with a different wrapper."
• Forward-looking projections: The market is expected to see accelerating growth over the next 5–10 years as:
  • Private market AUM continues to compound at 10–15% annually.
  • Turnover rates in private equity rise to levels seen in public markets.
  • Emerging asset classes (credit, infrastructure) reach maturity, further increasing liquidity options.
• Participants anticipate a more competitive environment as new entrants scale, potentially favoring sellers once the market matures.

Addressing Market Sentiment

• Despite headlines describing "manic activity," the environment is characterized by high volume rather than irrational pricing behavior.
• Valuation remains segmented, with some assets trading at record discounts while others are considered fully valued.
• The growth of secondaries is interpreted as a net positive, creating a "liquidity wrap" that enables companies to stay private longer and allows investors to maneuver between asset classes more easily.