The secondaries market is experiencing a remarkable surge, with 2024 witnessing a record-breaking $160 billion in transaction volumes. In January, Ardian also made headlines by launching a $30 billion secondaries platform, the largest ever seen in the space. This unprecedented fundraising signals strong investor appetite and a fundamental shift in the dynamics of private market investing.
It’s clear that institutional investors and fund managers see this market as a critical tool for portfolio management and liquidity. However, with so much capital flowing into secondary funds and competition intensifying, the industry faces a pressing question: is this growth sustainable, or are we headed toward a pricing imbalance that could mirror the excesses of past private equity cycles?
Secondaries’ growing popularity
The rise of secondaries is shaking up the market, driven by increasing appetite among investors for exposure to mature private market assets. In contrast to traditional private equity investments, which require long holding periods, secondary transactions allow investors to buy into funds that have already deployed capital and therefore have existing underlying assets in their portfolios.
Secondaries also offer a crucial early liquidity mechanism for limited partners (LPs), enabling them to sell private assets before a fund is fully realised. Pension funds, endowments, and other institutional investors can use this liquidity to rebalance the risk in their portfolios, reduce exposure to underperforming assets, or free up capital for new investment opportunities.
The deployment challenge: Too much capital, too few deals?
While demand for secondaries is soaring, a key challenge is emerging: the ability to find quality deal flow at reasonable pricing. The massive influx of capital into secondaries funds means that these asset managers are under pressure to deploy capital quickly within their funds’ defined investment periods. However, deal opportunities depend heavily on broader market conditions.
If public markets remain stable and there is no major correction, asset owners of primary investments may see less urgency to sell their private assets at a discount. Without a compelling reason to rebalance, the supply of high-quality secondary opportunities could diminish. This, in turn, may push secondary funds to pay excessive premiums on NAV to win those deals that are available in the market —an unsustainable trend that echoes the overheated buyout market of 2005-2007.
In such a scenario, investors must be wary of aggressive pricing and overvaluation risks. Having capital ready to deploy doesn’t mean every transaction is worth pursuing. Funds that overpay in the current environment could struggle with future returns, particularly if market conditions shift unexpectedly.
A seller’s market: LPs should seize the opportunity
Conversely, the growth in the secondaries market, predicted to reach volumes of over $200 billion by 2028, presents an attractive window for LPs looking to de-risk and gain early liquidity. Given the historic fundraising volumes and heightened buyer competition, sellers have the leverage to negotiate favourable terms.
For LPs considering a secondary sale, the key is to take a data-driven approach. Understanding portfolio performance at a granular level can help identify which funds or assets are best suited for a secondary transaction. By strategically selling underperforming or non-core assets, LPs can reallocate capital more effectively while taking advantage of strong buyer demand.
At the same time, LPs must exercise caution. While it may be tempting to capitalise on high valuations, selling too aggressively could mean missing out on long-term gains. The right approach involves a careful balance—identifying assets that are better off liquidated while retaining exposure to high-performing investments.
A make-or-break moment
The secondaries market has arrived at a pivotal point. Record-breaking capital inflows and transaction volumes reflect an industry that has matured and become an essential part of private market portfolios. However, this rapid expansion comes with risks that investors must navigate carefully.
One factor to watch is the broader macroeconomic environment. If interest rates remain elevated or public markets experience turbulence, the supply of secondary opportunities could increase significantly, leading to a different pricing dynamic to what we see today.
Ultimately, the secondaries market is a powerful portfolio tool, but success in this space will require discipline with robust investment underwriting of buyers and deep asset level operating performance insights of sellers, both of which are driven by granular data at scale. Investors must resist the temptation to chase deals at inflated valuations and premiums and instead focus on long-term fundamentals. For LPs, now is the time to take a data-driven approach to reassess private market portfolios and make strategic reallocations.
