LPs Seek Agility, Secondaries Gain Momentum in Private Equity

Once dismissed as a lifeline for underperforming assets or a venue for "private equity fire sales," have secondary markets now become an essential strategic tool for private equity LPs?

This shift, or what some might describe as a significant evolution, has really been driven by a combination of factors. Of course, changes in market conditions have played a key role, setting the stage for new opportunities.

At the same time, investors these days have become increasingly sophisticated, seeking more ways and innovative tech to manage portfolios. Add to this the growing need for diversification and it was perhaps only a matter of time before the secondaries market grew above historical levels.

The above forces have paved the way for transaction structures designed to offer stability and flexibility, particularly in tumultuous markets. And we’re seeing real growth now. The private equity secondary market has experienced unprecedented growth in 2024, with transaction volumes predicted to reach beyond the $150 billion mark.

In the first half of the year alone, the market achieved $68 billion in transactions. We actually have a whole article dedicated to the secondary market and the latest statistics: read more here.

Before we go deeper into the topic, it’s important to remember that the secondary market is still a small fraction of the overall private capital market. Even with record transaction volumes, it represents about 2% of an estimated $6.5 trillion plus private capital market. But this means there is substantial potential for further growth within this sector.

And as private equity secondaries mature, they can certainly provide new avenues for cash flow, diversification, and portfolio management, changing the dynamics between general partners (GPs) and limited partners (LPs) in the process. 

By reading on, you’ll get an insight into the factors that have caused the recent rise of private equity secondaries, what the benefits are for LPs, and the broader implications for relationships between GPs and LPs.

The Foundations: What Gave Rise to the Secondary Market?