Private equity has faced a challenging few years. Despite a more supportive backdrop of falling inflation, lower interest rates and recovering public markets since the lows of 2022 and 2023, activity across deals, exits and fundraising has remained subdued. Heightened geopolitical uncertainty, volatile public markets and continued pressure on traditional exit routes have all contributed to a more cautious investment environment.

Against this backdrop, one area of private markets has continued to stand out: secondaries. Once viewed as a niche segment, secondaries have evolved into a core part of the private markets ecosystem, providing liquidity, enabling portfolio management and creating access to differentiated investment opportunities for both buyers and sellers.

Secondaries address one of the central challenges of private markets: illiquidity. A functioning secondary market allows investors in private equity funds to generate liquidity without relying solely on GPs to exit portfolio companies. LPs can instead sell their fund interests in the secondary market and thus take greater control over the timing of their liquidity. 

Here, we take a closer look at this growing part of the market and provide our perspective on the opportunities and risks, as well as how secondaries fit into investors’ portfolios.

Secondaries explained

So what exactly are secondaries and how have they developed?

Historically, private equity investments were made almost exclusively through the primary market. GPs would raise capital from investors and invest that money over the life of a fund, typically around 10 years. During that period, investors had limited options to exit a fund before the underlying assets were sold by the GP.

The secondaries market emerged first in the 1980s to address this issue, enabling investors to buy and sell existing private market investments before the end of a fund’s life. It remained niche until the end of 1990s and started to enjoy initial growth from the early 2000s. Over time, what was once viewed as a niche area of private equity has evolved into a large and increasingly sophisticated market that provides liquidity, flexibility and attractive investment opportunities for both buyers and sellers. Importantly, it has also evolved from a reactive liquidity tool into a more strategic portfolio management solution, with a whole ecosystem of its own.

The most traditional type of a secondary transaction is an LP-led secondary, where an investor sells their interest in one or more private equity funds to another investor. For buyers, LP-led transactions can provide access to more mature portfolios, often with greater visibility on the outlook for the underlying assets and a shorter time to distributions.

GP-led transactions are the second main category of secondaries and have grown rapidly in recent years. In these transactions, a GP transfers one or more existing portfolio companies into a newly established fund, typically known as a continuation vehicle. This allows the GP to retain high-quality assets for longer, while existing LPs are generally given the option either to receive cash proceeds from the sale or to roll their interests into the new vehicle and remain invested in the underlying company or portfolio. These transactions have become a key driver of market growth and reflect the shift towards more active and flexible portfolio management by GPs, extending ownership of high-quality assets beyond traditional fund lifecycles.

As the market has grown, secondaries have expanded well beyond traditional private equity buyout funds. Today there is increasing activity across infrastructure, private credit, venture capital and real estate, while newer structures such as preferred equity and structured liquidity solutions are also becoming more common. This broadening has been a key driver of growth as private markets have expanded and matured.

The result is that secondaries are no longer simply a liquidity tool used by LPs during periods of market stress. They are becoming an increasingly important part of the private markets ecosystem and a core portfolio management tool for both LPs and GPs. In many cases, they are now used as part of a planned approach to liquidity, portfolio optimisation and capital allocation rather than a reactive solution.

The only way is up

These benefits have led to stellar growth. In 2012 the volume in the secondaries market totalled circa USD 25bn. By 2025, it totalled approximately USD 230bn, representing nearly 50% growth year-on-year. This represents close to a tenfold increase over just over a decade, making secondaries one of the fastest-growing segments within private markets.

GP-led transactions, particularly single-asset continuation vehicles, have been among the fastest-growing segments of the secondaries market. At approximately USD 55 billion in annual transaction volume, the single-asset continuation vehicle market alone is now larger than the entire LP-led market was in 2018. 

Expectations are that this trend will continue, with some market participants estimating that the total secondaries market could reach USD 300bn in the next two years.¹ As the market has grown, it has become more complex and more institutional in nature. This has become increasingly important to LPs during the past few years given the denominator effect. During 2021, private equity provided outstanding returns to investors while in 2022, public markets were battered by rapidly increasing interest rates to counter higher inflation. This resulted in many institutional investors becoming over-allocated to private markets, requiring them to rebalance their portfolios in order to stay within target allocation ranges.

At the same time, the more volatile market backdrop reduced the ability of private equity companies to provide liquidity via IPOs. Trade sales also dried up as buyers became more cautious, while LPs had less free cash to invest because of their over-allocation to private equity. The secondaries market provided much-needed respite during this period.

GP-led transactions can provide a resilient source of liquidity during more challenging market periods. In such environments, investors tend to gravitate toward high-quality companies with strong market positions, while weaker assets are less likely to be exited. 

As GPs increasingly transfer their well performing “trophy assets” into continuation vehicles, we have observed several GP-led investments that have generated notable returns in under 3 years of holding periodWhile the rebound in public markets helped ease the denominator effect in 2023 and 2024, broader macro and geopolitical uncertainty has persisted, and liquidity challenges have therefore remained. A large pool of institutional investors that have so far not accessed the secondary market is now increasingly considering asset sales in response to the prolonged liquidity drought. 

Alongside these cyclical pressures, the growth of secondaries is increasingly being driven by structural changes in private markets. Several dynamics are reinforcing this trend.

The first is the continued expansion of private markets, which has created a significantly larger pool of assets and therefore a wider opportunity set for secondary transactions. Despite the extraordinary growth in secondary transaction volumes over the past decade, only around 1–2% of the estimated USD 14–15 trillion global private assets market changes hands through secondary transactions each year. Even a modest increase in this penetration rate could therefore drive substantial further growth in secondary market volumes.

Extended holding periods are also playing a role, as companies remain private for longer and traditional exit routes become less predictable. Furthermore, institutional investors are managing larger and more complex portfolios, leading to more active use of secondaries as a tool for portfolio construction and rebalancing.

Finally, the rise of GP-led transactions has structurally changed the market by enabling the continuation of high-quality assets beyond traditional fund lifecycles, embedding secondaries more deeply into value creation.

Additional innovation is also likely as the market matures. One area being highlighted, for example, is infrastructure. Secondary funds have traditionally avoided this market due to the perception of lower returns but attitudes are shifting. The strong growth in evergreen funds, which provide significant flexibility and consistent capital deployment, will also provide a boost to both buyers and sellers in the secondary market.

Do discounts matter?

We are cautious of the historic preference for relying on discounts to drive returns in secondaries funds, preferring to focus on overall asset quality. We performed an extensive in-house analysis of completed secondaries transactions over two decades (1996–2017) and the results show that there is no significant correlation between the discount at entry and the ultimate performance of the investment. Even when considering “net discounts” after taking post-cut off cashflows into account, the correlation remains low. In fact, the highest returns were often achieved in transactions with minimal discounts between 0% and 5%.

Our analysis also showed that ca. 83% of the total return came from the post-acquisition growth in underlying NAV, while the initial discount contributed only around 17%. This distribution illustrates that the true value drivers in secondaries transactions are information advantages in valuation, timing of the transaction and quality of the underlying companies – factors that have far more impact on performance than the initial purchase price.

Our approach has always been to focus on the quality of the underlying assets in every transaction and only if these qualitative criteria are met do we consider an investment – regardless of the discount offered:

1. positioning in high-growth market segments 
2. mission-critical products or services 
3. solid financial fundamentals 
4. moderate debt ratios 

It is this focus on risk mitigation that has contributed to our strong performance, achieving our last programme’s target KPIs just three years after closing.

In a geopolitical environment that is proving ever-more challenging to read, we are laser-focused on quality and minimising risk in order to achieve our stated mission of generating repeated strong, unlevered returns and high cash on cash multiples.

Secondaries have moved beyond their origins as a niche liquidity tool and are now a core part of modern private markets. What began as a liquidity solution has become a key mechanism for how private markets are managed and accessed.

Looking ahead, the structural drivers behind this shift are likely to continue. Private markets continue to expand, holding periods remain extended, and investors are increasingly reliant on flexible liquidity solutions to manage larger and more complex portfolios. At the same time, GP-led activity and the rise of evergreen capital structures are embedding secondaries even more deeply into how private assets are owned and managed.

Against this backdrop, secondaries are likely to continue growing both in scale and importance as they become an increasingly central part of private markets.

 ¹Please note that this is an estimate and not guaranteed; actual future volumes could vary.