Private equity secondaries have become an increasingly attractive segment of the private equity market, with transaction volumes reaching a record high of $160B in 2024.1 Unlike primary investments, which typically require committing capital to newly raised funds with blind pool risk, secondaries allow investors to purchase existing stakes in private equity funds or direct company investments.
By acquiring assets further along in their lifecycle, secondaries offer investors exposure to mature holdings—reducing uncertainty and potentially shortening the time to liquidity, making them compelling in today’s volatile market environment.
What are private equity secondaries?
Private equity secondaries refer to the purchase of existing stakes in private equity funds or direct investments in private companies from other investors. Unlike primary investments—where an investor commits capital to a new fund and waits for deployment—secondaries involve buying into a fund that is already partially invested, reducing uncertainty and accelerating the path to potential returns.2
LP-led vs. GP-led secondaries
Private equity secondaries are broadly categorised into two types: (1) LP-led, and (2) GP-led transactions:
LP-led secondaries: Liquidity for investors
- In LP-led secondaries, a Limited Partner (LP)—such as a pension fund, endowment, or family office—sells its stake in an existing private equity fund to another investor.
- These transactions provide liquidity to LPs who may need to rebalance portfolios or exit early.
- Buyers often acquire fund interests, often at a discount to net asset value (NAV), providing opportunity for potential upside.
- LP-led secondaries are typically passive investments, meaning the buyer steps into the seller’s position without influencing fund management.
GP-led secondaries: Extended growth for strong assets
- GP-led secondaries are initiated by the General Partner (GP) managing a private equity fund.
- These deals are often structured as continuation funds, where the GP transfers select high performing assets into a new investment vehicle. This can be a single asset or a portfolio of assets.
- Investors can choose to cash out or reinvest alongside the GP, who retains control over the asset(s).
- GP-led transactions have gained significant traction, allowing managers to extend ownership of high-quality companies while providing liquidity to existing investors.
Why are secondaries attractive?
1. Reduced blind pool risk & faster liquidity
- Unlike primary investments, secondaries provide greater visibility into portfolio performance before investing.3
- Investors can assess existing assets, cash flows, and fund manager performance, reducing uncertainty.
- Secondary investments are often closer to exit, leading to potentially faster distributions than primary PE commitments.
2. Diversification from public market volatility
- Private equity secondaries offer exposure across multiple funds, sectors, and geographies. This diversification reduces single-manager risk and spreads investments across various investment styles and strategies.
- Private equity secondaries typically have a low correlation to public equities and bonds, helping to reduce overall portfolio volatility.4
- During periods of public market stress, secondary investments can provide potential stability and resilience due to their long-term nature and structure.
3. Capitalise on growth opportunities with GP-led transactions
- The rise of GP-led secondaries allows investors to participate in high-performing assets that GPs want to hold longer.5
- These deals provide access to highquality assets that may not be available through traditional fund commitments.
- These are assets backed by management teams and value creation strategies that the GP is deeply familiar with, positioning them well to continue generating growth.5
Key risk considerations
While secondaries present opportunities, investors should also consider potential risks:
- Capital risk: Private equity secondary investments are subject to economic, regulatory, market, and political risks, potentially making them worth more or less than the original investment. Investors may lose the entirety of their invested capital.
- Liquidity and valuation risk: Private equity secondary investments may have no or limited liquidity with valuations that may be based on estimates which cannot be marked to market until sale. There is no guarantee of selling these investments at fair value.
- Leverage: Private equity portfolios may use leverage, which entails the use of debt to finance a portion of its investments, that can increase the risk of investment loss.
- Manager and operational risk: The success of a private equity fund heavily depends on the skills and decisions of its managers, whose strategies may not always perform as expected. Management and operational challenges within underlying portfolio companies can lead to underperformance or losses.
As private equity markets continue to evolve, secondaries have emerged as a compelling entry point for investors seeking access to private market assets with improved transparency and potentially shorter liquidity horizons. Whether through LP-led transactions offering discounted fund stakes or GP-led deals providing exposure to high-quality assets, secondaries present a unique opportunity to engage with seasoned investments and attractive return profiles. That said, as with any private market strategy, careful due diligence remains critical to fully understand the risks and return potential.
Sources:
2 https://www.hamiltonlane.com/en-us/education/private-markets-education/secondaries
4 https://www.morganstanley.com/ideas/private-equity-secondaries-volatile-markets
