As we reflect on the record-breaking year of 2024 for secondaries transaction volume, the outlook for 2025 appears even more promising. The secondary market, particularly GP-led transactions, has shown remarkable resilience and growth over the years, positioning itself as a critical component of the private equity landscape. As we move into the first quarter of 2025, secondary buyers are reporting robust pipelines filled with a healthy mix of multi-asset and single-asset deals, indicating a continued upward trajectory in deal volume. Fundraising by secondaries funds also has been proceeding at a robust pace and 2024 saw a number of new entrants. Going into 2025 we’d expect continued growth of evergreen products focused on secondaries strategies as well as the continued growth of more specialized secondaries strategies, such as funds focused on credit- or infrastructure-secondaries, alongside flagship secondaries funds. Based on conversations with a number of sponsors, we also expect to continue to see new secondary buyers enter the market over the months ahead.
Secondaries as a Portfolio Management Tool
In 2024, secondaries solidified their position as a broadly accepted portfolio management tool. Fund sponsors embraced fund recapitalizations and preferred equity deals to manage both individual assets and older portfolios across asset classes. Fund investors, on the other hand, have begun using secondary sales to rebalance their portfolios. Additionally, several institutions have launched buy-side secondaries programs, further emphasizing the growing importance of the secondary market in portfolio management.
One interesting trend last year was the relatively higher roll volume in GP-led fund recapitalizations. This phenomenon could be a reflection of LPs’ perceptions of asset quality, especially as GP-led transactions have gained acceptance among top-tier GPs. Alternatively, it might be driven by LPs acknowledging that secondary buyers are aiming for private equity-level returns on their deals. Another possibility is that LPs are feeling less capital-constrained due to an uptick in exit activity. Regardless of the reason, the continuation of this trend in 2025 will be an interesting development to watch.
IPO Activity and Deal Volume: A Shifting Landscape
Over the past few years, IPO activity and deal volume in the PE markets have been relatively depressed. However, this trend seems to be shifting. Despite the anticipated increase in deal volume, it is expected that secondaries deal volume will continue to grow. The market’s acceptance of GP-led transactions as an alternative exit opportunity is a significant factor contributing to this growth. GPs are now more inclined to consider GP-led restructurings alongside traditional exit options, such as straight sales. This approach allows GPs additional time to realize the portfolio and even infuse additional cash if needed.
The Rise of Single Asset GP-Led Transactions
Another trend that gained momentum in 2024 is the rise of funds focused exclusively on single asset GP-led transactions. Many of these vehicles are being launched by PE sponsors as complementary products to their flagship buyout strategies. This trend highlights the evolving nature of the secondary market, where innovation and specialization are becoming increasingly important.
Expanding Horizons: Credit and Infrastructure Secondaries
Historically, secondary buyers have been hesitant to venture into credit and infrastructure secondaries due to the perception of lower returns, coupled with the breadth of opportunities available in the private equity space. However, the landscape is evolving. Recently, several buyers have started developing asset class-specific secondary strategies, such as funds focused solely on infrastructure secondaries. Mega investors see these strategies as providing the same J-curve benefit for their broader portfolios as their positions in PE secondaries funds have historically. This shift could lead to increased diversification and growth in the secondary market. While the market opportunity for credit or infrastructure secondaries may be smaller compared to PE secondaries, it remains a significant opportunity.
The Growth of Evergreen Products
The dramatic growth of evergreen products continued over the past year, and this trend is expected to persist in 2025. Several secondary buyers are already considering more focused evergreen strategies, and many are actively exploring ways to retail capital around the globe. The flexibility and continuous capital deployment offered by evergreen products make them an attractive option for both buyers and sellers in the secondary market.
Conclusion
As we look ahead to 2025, the secondary market is poised for another year of robust growth and innovation. The trends observed in 2024, such as the rise of GP-led transactions, the expansion of secondaries across asset classes such as credit and infrastructure, and the increasing acceptance of secondaries as a portfolio management tool, are likely to drive further growth. With a strong pipeline of deals and a growing acceptance of innovative strategies, the secondary market is set to play an even more significant role in the alternative asset landscape in the coming year.
The author, Isabel Dische, is a New York-based partner with Boston-based law firm Ropes & Gray and chair of the firm’s Alternative Asset Opportunities Group.
