Private equity secondaries: from a liquidity solution to a core allocation
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Investing in secondaries is like backing a football team halfway through the season. Rather than relying on blind faith, you’re investing with evidence: assets have been acquired, performance is being crystallised and there is less time for things to go wrong.
What are secondaries?
Private market funds are typically long-term, closed-ended structures. Investors (known as Limited Partners or LPs) lock up capital for a number of years while the manager (known as the General Partner or GP) acquires, manages and ultimately fully exits investments.
In practice, that plan rarely holds perfectly. LPs’ circumstances change, and GPs sometimes don’t want to (or can’t) sell assets according to the originally agreed timescale at their target price. This is where secondaries come in.
There are two main transaction types:
- LP-led secondaries: This is where an LP sells its holding in a private market fund to another investor, partway through the fund’s lifespan.
- GP-led secondaries: This is where, typically, a GP transfers some of the underlying investments into a new structure, called a continuation vehicle. When doing so, existing LPs are usually given the option to cash out and walk away, or roll their investments into the new vehicle, often alongside fresh outside capital.
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Why are secondaries in focus?
1. A growing and increasingly sophisticated market
A decade ago, secondary transactions were (relatively) rare and concentrated among a small group of specialist buyers and motivated sellers.
Today, it’s a far more organised market, with well-established brokers, intermediaries and a deep pool of buyers and sellers. With annual transaction volumes reaching over $230bn in 2025, secondaries have migrated from being a niche solution to becoming a meaningful part of the private market ecosystem.
2. Funds exits have slowed and lifespans are being extended
Higher interest rates and slowing M&A activity have made it harder for private market funds to exit their underlying investments. As a result, these assets are being held for longer and distributions to investors have been delayed.
This phenomenon can be seen in the chart. It shows that for a given number of years after a fund's launch, LPs have generally been receiving less cash back from their private equity portfolios with each successive fund vintage from 2017 to 2021. Put more simply, more recent funds are returning cash more slowly than older funds were at the same stage of their life.
For some investors, capital calls have therefore outpaced distributions for a sustained period, putting pressure on liquidity and portfolio allocations. At the same time, managers are increasingly using continuation vehicles to hold on to assets where they believe further value can be created. Together, these factors have materially increased the volume of secondary transactions.
3. Access is increasingly straightforward, with specialist funds available
Alongside market growth, access routes have improved. A growing number of asset managers have launched funds explicitly designed to purchase holdings through the secondary market, providing a streamlined, professionally managed access route.
We think secondaries should feature in most private market programmes
Secondaries are increasingly a common feature in institutional portfolios, offering a distinct set of characteristics relative to traditional private market investments. In our view, they can be one of the most effective entry points into private markets.
One of the key attractions is their tighter return profile. While secondaries are less likely to deliver the outsized gains of top-quartile private equity funds, they significantly reduce downside risk, a trade-off many of our clients prefer, particularly as median outcomes are broadly similar across access routes.
To illustrate this, the chart shows the distribution profile for private equity funds focussed on secondaries versus primary buyout investments (for vintages between 2011 and 2022). As you can see, it is very rare for funds focused on secondaries to deliver an overall loss over their lifespan.
We think the difference between the return profiles is a result of three key factors:
Unlike primary funds, where investors back a GP to source and execute deals that are not yet known, direct secondaries involve buying into portfolios where there is visibility on most (if not all) of the underlying assets, sectors, financials and management teams.
Investing via a secondaries fund still carries some blind pool risk, but the manager faces significantly less risk than investing directly into the underlying assets themselves.
A well-built secondaries portfolio provides exposure to multiple managers, strategies, geographies and vintage years. Importantly, this can now all be achieved through a single commitment to a secondaries fund, which is particularly attractive for investors building a private markets allocation for the first time.
The charts for instance show the exposure that exists in one such secondaries fund, i.e. a wide range of vintages held (and in practice, look-through exposure to thousands of underlying companies); and exposure to assets across the globe. This is a well-designed and managed private markets programme, all accessed through a single point of contact.
Secondary funds are typically able to put capital to work faster as compared to their primary counterparts. When market conditions are supportive and attractive opportunities exist, we’ve seen full secondary fund commitments deployed in under a year, while still maintaining a rigorous due diligence process. Importantly, this means you don’t need to sit on liquid assets to meet sporadic capital calls and can better manage your own liquidity.
Secondary transactions often occur at discounts, partly reflecting the liquidity provided to the seller. This can, where priced attractively, generate an additional (and potentially quickly obtained) source of returns for the buyer. The chart shows average discounts in LP secondary transactions across buyout and growth/venture over time. Where captured at entry, these discounts can provide an immediate uplift to returns, although the size of the opportunity varies with underlying market conditions. However, in an increasingly competitive market, we think that discounts alone are unlikely to be a persistent source of excess returns.
Routes for gaining exposure
There are two main routes that we typically support our clients with, each with different requirements and trade-offs. Your usual LCP contact would be happy to talk you through the practicalities of the options in this space.
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Buying holdings yourself on the secondary market - either through a platform, a broker or direct relationships with GPs. This requires significant due diligence and often access to GP-led deal flow (which is typically built through having a proven track record as a reliable counterparty).
This route is frequently inaccessible (or ill-advised) for institutions without experienced in-house private markets teams. However, it does offer the opportunity for greater control and the ability to build a highly bespoke portfolio.
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We consider this the most appropriate route for most institutional investors. Employing established secondaries fund managers can strike the right balance between minimising governance burdens, achieving diversification and obtaining favourable and differentiated net of fee investment returns.
Next steps
What was once a niche market for distressed sellers and opportunistic buyers has evolved into a sophisticated, hundreds of billions of dollars asset class.
For investors building or scaling a private markets allocation, secondaries represent a compelling and practical solution.
So what to do now?
- Assess how secondaries could feature in your overall strategy
- Keep a close watch on market conditions
- Decide on your preferred access route
Our team here at LCP can help you to navigate these steps, from understanding the market through to selecting the right structures and managers.
If you want to know more, we’d be happy to talk through how we’ve helped other institutions in this area
Get in touchYour questions answered
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Private market secondaries involve buying or selling existing interests in private market funds before they reach the end of their lifespan. This gives investors access to mature portfolios with greater visibility on the underlying assets and performance.
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Secondaries can offer an attractive balance between risk and return, with lower downside risk than many traditional private equity investments. Investors also benefit from quicker capital deployment, earlier cash flows and increased transparency over underlying assets.
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Secondaries funds provide diversified exposure to private markets through professionally managed portfolios of existing investments. They can help investors access opportunities that may otherwise be difficult to source while reducing governance and due diligence requirements.