Secondary market investing is deeply familiar to stock market investors with centralized exchanges such as the New York Stock Exchange (NYSE) and Nasdaq matching billions between buyers and sellers on a given day. At a fundamental level, the secondary market for private equity (PE) is not dissimilar in its purpose—a market between sellers seeking liquidity and investors seeking exposure to the market.
However, the secondary market for PE is illiquid and relatively early in its evolution compared to public markets. PE has experienced expansive growth over the last decade as the universe of PE fund managers and investors has increased significantly, pushing North American PE assets under management (AUM) to nearly $3.5 trillion today. A deeper and wider investor base, a dramatic rise in the number of private companies and portfolio construction considerations unique to private market investors have created demand from both general partners (GPs) and limited partners (LPs) for a more efficient and robust secondary market.
For investors, we believe the continued evolution of the secondary market for PE presents opportunities for strong returns, portfolio diversification and more direct exposure to the companies driving economic growth.
Key takeaways
- Secondaries are a natural evolution of the maturing PE market—where North American AUM is nearly $3.5 trillion.
- The unique market structure often yields favorable dynamics for investors: Purchase discounts, no blind pool risk and reduced J-curve.
- Secondaries serve as a differentiated access point to the return drivers of private equity, combining portfolio acquisitions (LP-led secondaries) and single-asset investments (GP-led secondaries).
- Provides a single-point-of-entry for portfolio diversification across vintages, sectors and GPs.
