The Rise of Secondary Markets in Private Equity

Private equity’s secondary market has developed from a specialised outlet for distressed sellers into an important part of the industry’s financial infrastructure. Lazard estimated that transaction volume reached $233bn in 2025, up from $152bn a year earlier, while Jefferies placed the total at $240bn. The precise estimates differ because advisers classify transactions differently, but both point to the same conclusion: investors and fund managers increasingly use secondaries to manage a private-equity market in which exits and cash distributions remain difficult.

The expansion is not simply a story of investors selling fund interests before maturity. Limited partners are using the market to rebalance portfolios, reduce older exposures and release capital for new commitments. General partners are moving selected companies into continuation vehicles when they believe an asset requires more time to develop than the original fund permits. New buyers, including dedicated secondary funds, pension investors, wealth-management vehicles and private-market managers, are supplying capital to both sides.

This growth makes private markets more flexible, but it does not make them liquid in the same sense as public equities or bonds. Transactions remain negotiated, pricing can vary materially and investors may wait months for a deal to close. Secondaries reduce the rigidity of long-dated private funds; they do not remove the valuation and governance risks that arise when assets cannot be traded continuously.

A market created by the limits of the fund structure

Traditional private-equity funds are usually designed to last for ten years or longer. Investors commit capital at the beginning of the fund, managers draw it over several years and the money is returned as portfolio companies are sold. The structure allows managers to invest without facing daily redemption demands, but it also means that limited partners have little control over the timing of cash flows.

The secondary market developed to address that constraint. An investor that no longer wants to wait for a fund to mature can sell its interest to another buyer, transferring both the remaining value and the obligation to meet future capital calls. The buyer receives exposure to a more seasoned portfolio, often with better visibility into the underlying assets than was available when the fund originally raised capital.

Early secondary sales were often associated with financial distress. Investors sold because they needed cash, exceeded allocation limits or could no longer fund their commitments. Buyers expected substantial discounts to reported net asset value as compensation for uncertainty, limited information and the possibility that the seller was acting under pressure.

That perception has changed. Institutions now use the market as an active portfolio-management tool, while dedicated buyers have raised larger pools of capital and improved their analytical capabilities. A sale may reflect a strategic decision to reduce exposure to a manager, geography or vintage year rather than a problem with the individual fund.

The global financial crisis accelerated this development because banks, pension funds and other institutions faced pressure to repair their balance sheets. The period demonstrated that even investors with long-term liabilities could need liquidity unexpectedly. It also established secondary specialists as credible counterparties capable of analysing and acquiring complex portfolios.

The latest growth reflects a shortage of distributions

The current expansion is closely connected to the private-equity industry’s prolonged exit slowdown. Higher interest rates, weaker valuations and uncertainty about economic growth have made it harder for managers to sell companies or bring them to public markets. As assets remain in funds for longer, cash distributions to investors have fallen below the levels many institutions expected when they made their commitments.

This creates a practical problem for limited partners. Pension funds, endowments and insurers often finance new private-equity commitments partly from distributions generated by older funds. When those distributions slow, investors receive less cash while still facing capital calls from newer vehicles. They may become overallocated to private markets even if the reported value of the portfolio has not declined.

Secondaries provide one way to release capital. An investor can sell older fund interests, reduce unfunded commitments or dispose of a group of positions that no longer fits its strategy. The proceeds can be used to meet liabilities, support new commitments or rebalance towards other asset classes.

The market also helps general partners respond to the same liquidity pressure. When managers cannot sell a company at an acceptable price, they may establish a continuation fund that buys the asset from the older fund. Existing investors are normally offered the choice of selling their interest or rolling it into the new vehicle.

Bain has described the wider private-equity industry as facing a liquidity constraint caused by a large backlog of unsold companies and longer holding periods. That environment has strengthened the role of secondaries, but it also means buyers must distinguish between assets that genuinely need more time and those whose managers are using new structures to postpone a difficult exit.

LP led transactions become routine portfolio management

In an LP-led transaction, an existing investor sells one or more fund interests to a secondary buyer. The buyer takes over the seller’s economic position, including future distributions and any remaining capital commitments. Such deals can involve a single fund or a portfolio containing interests in dozens of vehicles.

The seller may have several reasons to transact. A pension fund might reduce private-equity exposure after changes in its allocation policy. A bank or insurer may respond to regulatory capital requirements. An endowment may seek cash to support spending needs, while a family office may simplify a portfolio inherited from an earlier investment team.

The California Public Employees’ Retirement System provides a useful example of how a major institution can use the market in both directions. CalPERS has sold legacy positions as part of efforts to reshape its private-equity portfolio, while also acquiring secondary interests to improve exposure across managers and vintage years. Its reported purchase of approximately $500mn of stakes from Yale’s endowment in 2025 illustrates that secondaries can be used to deploy capital as well as release it.

This is an important development because it challenges the view that a secondary sale necessarily signals weakness. Yale may decide that particular holdings no longer fit its liquidity needs, while CalPERS may consider the same assets attractive at the negotiated price. The transaction allows both institutions to pursue different objectives without requiring the underlying managers to sell their companies.

LP-led transactions also give buyers access to established portfolios. Unlike a new fund commitment, where investors may wait years for capital to be deployed, a secondary purchase can provide immediate exposure to companies that are already operating within the portfolio. This reduces blind-pool risk, although it does not remove uncertainty about future valuations and exits.

Pricing depends on more than the headline discount

Secondary transactions are often described according to the discount or premium paid relative to reported net asset value. A buyer that pays 90 cents for each dollar of reported NAV appears to receive a 10 per cent discount. The measure is useful, but it can be misleading when considered in isolation.

Net asset values are estimates produced by fund managers, usually on a quarterly basis. They may be based on comparable public companies, recent transactions, discounted cash flows or other valuation methods. During periods of rapid market change, the reported figure may not reflect current financing conditions or the price at which an asset could actually be sold.

Buyers therefore examine the underlying companies, debt structures, operating performance and likely exit timing. A portfolio purchased at a small discount may be attractive if its assets are high quality and close to realisation. A deeply discounted portfolio may still be poor value if the companies require additional capital or face weak prospects.

The timing of the reference NAV also matters. A transaction negotiated using a valuation from several months earlier may include an adjustment for distributions, capital calls or changes in operating performance. Deferred payment structures can further complicate the apparent price because part of the consideration may be paid later.

For sellers, the relevant comparison is not simply reported NAV. They must assess the value of receiving cash today against the possibility of higher distributions in the future. A discount may be acceptable when the proceeds can be reinvested in a more attractive strategy or used to meet an urgent liquidity need.

GP led deals alter the traditional exit process

The rapid growth of GP-led transactions is the most important structural change in the secondary market. In these deals, the general partner initiates the transaction rather than waiting for a limited partner to sell. The most common structure is a continuation fund that acquires one or more assets from an existing fund.

The rationale is understandable. A manager may own a strong company that has not completed its growth plan, made a major acquisition or reached the optimal point for sale. The original fund may be approaching the end of its life, while some investors want liquidity. A continuation vehicle can provide cash to those investors and allow others to retain exposure.

These transactions can align interests when they are structured carefully. Existing investors receive an exit option, rolling investors remain invested and the manager gains additional time and capital to develop the business. New secondary buyers obtain access to an asset they have been able to examine in detail.

The structure also creates conflicts. The same general partner often represents the selling fund, manages the buying vehicle and continues to oversee the asset. It therefore influences the valuation, the transaction process and the future fee arrangement on both sides of the deal.

Independent advice, competitive bidding and clear disclosure are essential. Investors need to understand how the price was determined, whether the manager is reinvesting its own capital and how management fees and carried interest will be reset. A continuation fund can create legitimate value, but it can also allow a manager to retain fees, avoid recognising a weak exit or transfer risk to a new group of investors.

Single-asset continuation funds concentrate these concerns because performance depends heavily on one company. Buyers may have extensive information, yet they also face less diversification and greater exposure to changes in the company’s sector, financing or management.

Continuation vehicles are not conventional exits

Private-equity performance has traditionally been validated when a company is sold to a strategic buyer, another financial sponsor or the public market. A continuation transaction is different because the asset remains under the control of the same manager, even though some investors receive liquidity.

The transaction may generate a realised return for the original fund, but it does not provide the same independent market test as a sale to an unrelated buyer intending to control the company. Secondary investors are acquiring the asset based partly on the manager’s continued conviction and the structure of the deal.

This does not make the transaction artificial. New investors commit real capital and have incentives to negotiate an appropriate price. The continuation vehicle may also introduce stronger governance, new financing or additional operational resources.

Investors should nevertheless distinguish between liquidity and final realisation. A GP-led deal creates cash for some participants, but the underlying company still needs to be sold eventually. If continuation funds become a repeated substitute for external exits, the industry may delay rather than resolve its valuation problem.

Buyers accept different risks from primary investors

Secondary buyers often have more information than investors committing to a new fund because they can analyse an existing portfolio. They can review company performance, valuation history, fund documents and remaining capital requirements. They may also benefit from acquiring assets closer to the point of exit, reducing the duration of the investment.

This visibility does not make secondaries low-risk. Buyers may rely on valuations provided by the manager, while the best-performing assets may have already been sold. Remaining portfolios can contain companies that require longer holding periods or additional funding.

A secondary purchase can also produce a faster reported return because the buyer acquires the interest after part of the fund’s life has elapsed. This effect, sometimes described as a shorter J-curve, is attractive to investors seeking earlier distributions. It should not be confused with lower economic risk.

Buyers must evaluate several factors:

• Asset quality: The underlying companies should be assessed individually rather than through the fund’s average performance.
• Unfunded commitments: The purchase price is only part of the capital required, since buyers may assume future obligations.
• Manager alignment: Buyers should examine whether the general partner is contributing capital and how its incentives change after the transaction.
• Exit assumptions: Returns can depend heavily on the timing and valuation of future sales.
• Concentration: Single-manager or single-asset deals may produce higher returns but expose investors to larger individual losses.
• Currency and financing: Cross-border portfolios and leveraged purchases introduce risks beyond the operating performance of the companies.

The secondary label therefore describes the transaction route, not a uniform investment strategy. A diversified portfolio of mature fund interests has a different risk profile from a leveraged continuation fund containing one company.

Technology improves execution but does not create liquidity

Digital platforms have attempted to make private-market trading more accessible by standardising information, connecting buyers and sellers and managing parts of the transaction process. Palico, Nasdaq Private Market and other providers have developed infrastructure for transferring private-fund or private-company interests.

Technology can reduce administrative friction, particularly for smaller transactions. It can help organise documents, confirm investor eligibility and provide a structured environment for bids. Better data may also allow buyers to compare portfolios more efficiently.

The difficult parts of a secondary transaction remain analytical and legal. Buyers need confidential information about underlying assets, while transfers may require manager consent and compliance with fund agreements. Tax treatment can differ across investors and jurisdictions.

A platform cannot guarantee that a seller will find a buyer at an acceptable price. Liquidity ultimately depends on demand, available capital and confidence in the assets. Technology may accelerate a functioning transaction, but it cannot create an efficient market for every private-equity interest.

More capital can narrow discounts and weaken discipline

The expansion of secondary fundraising has increased competition for assets. Bain reported that secondaries funds raised $102bn in 2024, taking total assets under management in the strategy to approximately $601bn. The growth of dedicated capital allows the market to absorb larger transactions and provides sellers with more credible bidders.

Competition can benefit sellers by improving prices. It can also reduce the return available to buyers, particularly when high-quality portfolios attract several well-capitalised funds. As discounts narrow, future performance depends more heavily on company growth and successful exits.

New entrants may also accept structures or valuations that established specialists consider unattractive. Wealth-management products and semi-liquid funds are beginning to provide individual investors with access to private-market secondaries, increasing the capital available to the sector.

This development requires caution. Retail and private-wealth vehicles may promise periodic liquidity while investing in assets that remain difficult to sell. The mismatch can become problematic when many investors request redemptions at the same time. Managers need sufficient cash, credit facilities or redemption controls to avoid selling assets under pressure.

Secondaries improve flexibility without solving the exit problem

The secondary market is sometimes presented as the answer to private equity’s liquidity shortage. It is more accurate to describe it as one mechanism for redistributing that shortage. When an LP sells a fund interest, liquidity moves from the buyer to the seller, but the underlying companies remain private. When a continuation fund acquires an asset, some investors receive cash while new investors assume the exposure.

This transfer can be economically useful. Investors with different time horizons and liquidity needs should be able to trade with one another. A pension fund seeking to reduce exposure may find a willing buyer with longer-dated capital and greater tolerance for illiquidity.

The system still requires final exits. Secondary buyers expect portfolio companies eventually to be sold or generate cash. If public offerings and corporate acquisitions remain weak for an extended period, the same assets can move between private vehicles without producing sufficient distributions across the system.

The market’s growth should therefore be interpreted as both a sign of maturation and evidence of stress. It shows that private equity has developed more sophisticated liquidity tools, but also that conventional exits have not kept pace with the capital invested in the asset class.

Practical considerations for investors

Limited partners considering a sale should begin with the purpose of the transaction. Selling to meet a short-term cash need differs from reducing exposure to a manager or restructuring an entire private-markets portfolio. The objective determines which assets should be offered and which price concessions may be acceptable.

A broad portfolio sale can generate substantial liquidity but may require the seller to include attractive holdings alongside weaker ones. A more selective process can preserve the best assets but may attract less buyer interest. Investors should also assess whether unfunded commitments, tax effects or internal allocation rules change the economic benefit of a transaction.

Buyers need to look beyond diversification and apparent discounts. They should understand the age of the funds, the quality of remaining assets and the assumptions required to achieve the projected return. In GP-led transactions, governance and process integrity are as important as the companies themselves.

General partners should treat continuation funds as a genuine transaction involving investors with different interests. They need to provide adequate time, information and alternatives to existing LPs. A process that pressures investors to make a rapid election can damage trust even if the underlying asset is strong.

Family offices and wealth managers should also consider whether they possess the resources to evaluate secondary deals directly. Fund interests and continuation vehicles require access to confidential data, legal analysis and private-company valuation skills. Investing through an experienced specialist may be more appropriate than selecting individual transactions without a dedicated team.

A larger market will bring more scrutiny

The secondary market is likely to remain an important source of liquidity over the next three to five years. Deal volume may fluctuate from the record level reached in 2025, but the underlying drivers are structural: private-equity assets under management have expanded, holding periods remain long and investors want more control over cash flows.

LP-led transactions are likely to become an ordinary part of institutional portfolio management. Large investors will continue using the market to adjust manager exposure, vintage concentration and unfunded commitments. The stigma associated with selling should decline further as more well-capitalised institutions appear on both sides of transactions.

GP-led deals will probably attract greater regulatory and investor scrutiny because of their inherent conflicts. The market will need stronger standards around valuation, disclosure, adviser independence and the time provided to investors. Managers that run transparent processes may establish continuation vehicles as a durable exit route, while weak processes could provoke resistance from limited partners.

The range of assets traded is also expanding. Private-credit, infrastructure, real-estate and venture-capital interests are becoming more visible within secondary portfolios. Each market has different cash-flow patterns and valuation challenges, requiring buyers to develop more specialised expertise.

Transaction volumes above $200bn no longer appear exceptional, but continued growth should not be assumed automatically. Pricing discipline, fundraising conditions and the eventual recovery of conventional exits will influence how much capital moves through the market. A strong IPO and mergers-and-acquisitions cycle could reduce the urgency of some secondary sales while also validating valuations and encouraging buyers to transact.

A liquidity mechanism becomes a permanent market

Private-equity secondaries have become essential because the asset class has outgrown a model in which every investor can wait patiently for each fund to complete its life. The record activity of 2025 reflects demand from institutions seeking cash, managers extending ownership of selected companies and buyers attracted by seasoned portfolios.

The market provides real benefits. It allows CalPERS and other institutions to reshape portfolios, gives LPs alternatives to waiting for distributions and creates another route for managers whose assets are not ready for sale. It also improves price discovery in a market where reported valuations are not continuously tested.

These advantages should not be mistaken for effortless liquidity. Every transaction transfers risk to another investor, and continuation vehicles may postpone the final test of whether an asset can be sold at the expected value. As the market expands, returns will depend increasingly on disciplined underwriting rather than on buying private-equity interests at large, automatic discounts.

Secondaries are no longer a marginal response to distress. They have become a permanent part of private-market portfolio management. Their long-term credibility will depend on whether they provide transparent and fairly priced liquidity, rather than simply extending the time before difficult valuations must be confronted.