The private equity secondaries market has gone from a niche corner of institutional finance to one of the fastest-growing segments of alternative investments. In 2023, global secondary transaction volume reached approximately $114 billion — and 2024 is on pace to exceed that. Understanding why this market exists, and why it’s accelerating now, is increasingly relevant for sophisticated investors looking beyond traditional public markets.

What Are Secondaries?

In the simplest terms, a “secondary” is the purchase of an existing interest in a private fund. When an investor commits capital to a private equity, venture capital, real estate, or infrastructure fund, that commitment is typically locked up for 10–12 years. There is no stock exchange to sell on. But over the life of the fund, circumstances change — an investor may need liquidity, want to rebalance, or face regulatory pressure to reduce exposure. The secondary market allows that investor to sell their fund interest to a willing buyer, usually at a negotiated price relative to the fund’s reported net asset value (NAV).

$114B
2023 secondary transaction volume (Jefferies)
~87%
Average pricing as % of NAV (2023)
$13.7T
Total private capital AUM globally (Preqin)

Types of Secondary Transactions

LP-Led Secondaries (Traditional)

The original form of secondary transaction: a limited partner (LP) sells their interest in one or more funds to a buyer. The buyer steps into the seller’s position, inheriting the remaining unfunded commitments, the existing portfolio of investments, and the distribution rights. Pricing is typically expressed as a percentage of the most recent reported NAV — for example, buying at “87 cents on the dollar” means paying 87% of NAV.

GP-Led Continuation Vehicles

The fastest-growing segment of the market. In a GP-led transaction, the fund’s general partner (GP) creates a new “continuation vehicle” to hold one or more portfolio companies that need more time to reach their full potential. Existing LPs can choose to roll their interest into the new vehicle or cash out at the transaction price. GP-led deals accounted for approximately 48% of all secondary volume in 2023, according to Jefferies’ Global Secondary Market Review.

Direct Secondaries and Preferred Equity

Direct secondaries involve purchasing a specific company or asset directly from a fund, rather than buying the LP interest. Preferred equity solutions provide structured capital to GPs or LPs — often with a fixed return preference — as an alternative to a traditional sale. Both are growing in sophistication as the market matures.

Why Is There So Much Supply?

The current surge in secondary supply is driven by several converging forces:

The Denominator Effect: Endowments and Pensions Rebalancing

University endowments, state pension funds, and other institutional investors typically operate under strict investment policy statements (IPS) that set target allocations to each asset class. When public equity and fixed income markets decline — as they did sharply in 2022 — the total portfolio value drops, but private holdings (which are marked less frequently) do not decline proportionally. The result is that private investments suddenly represent a larger percentage of the total portfolio than the IPS allows.

This “denominator effect” forces institutions to sell private fund interests on the secondary market to bring their allocations back within policy limits. It’s not that the private investments are performing badly — in many cases they are performing well. The selling is driven by portfolio construction discipline, not investment judgment.

Rising Interest Rates Have Slowed Exits

The Federal Reserve’s aggressive rate-hiking cycle from 2022 through 2023 dramatically changed the economics of private equity deal-making. Higher borrowing costs mean leveraged buyouts are more expensive to finance. Valuation gaps have widened between what sellers want and what buyers will pay. IPO markets have been largely shut for all but the most compelling companies.

The result: private equity funds are holding portfolio companies longer, distributions back to LPs have slowed to a trickle, and investors who expected to recycle capital from exiting investments are sitting on illiquid positions instead. According to Bain & Company’s 2024 Global Private Equity Report, total unsold PE portfolio value (unrealized NAV) exceeded $3.2 trillion at the end of 2023 — a record. This backlog of unrealized value is one of the primary drivers of secondary supply.

Regulatory and Balance Sheet Pressures

Banks and insurance companies face capital adequacy requirements that penalize illiquid private holdings. As regulators have tightened standards, some financial institutions have been forced sellers of private fund interests. Japanese regional banks, European insurers, and certain sovereign wealth funds have all been active sellers in the secondary market as they restructure their portfolios.

“Secondaries represent one of the few areas in private markets where buyer and seller can both walk away satisfied. The seller gets liquidity they can’t access elsewhere. The buyer gets a mature portfolio at a discount, with reduced blind pool risk.”

Why Buyers Are Interested

For investors entering the secondary market as buyers, the appeal comes from several structural advantages:

  • Discount to NAV. Secondary interests historically trade at discounts to net asset value. In 2023, the average pricing for buyout fund secondaries was approximately 87% of NAV (Jefferies). This discount provides a margin of safety and enhanced return potential.
  • J-curve mitigation. Primary private equity fund commitments typically produce negative returns in the early years as management fees are charged against uncalled capital. A secondary buyer enters a fund that is already partially or fully invested, bypassing the J-curve and accelerating the path to positive returns and distributions.
  • Visibility into the portfolio. A secondary buyer can evaluate the fund’s existing portfolio companies — actual operating performance, revenue growth, margin trends — rather than committing capital to a “blind pool” that the GP has not yet deployed. This information advantage reduces underwriting risk significantly.
  • Shorter duration. Because the underlying investments are already several years into their lifecycle, the time to exit is shorter than a primary fund commitment. This appeals to investors who want private market exposure without a 12-year lockup.
  • Diversification. A single secondary portfolio can provide exposure to dozens or hundreds of underlying companies across multiple vintage years, geographies, sectors, and GP strategies.

Market Size and Growth

The secondary market has grown from approximately $25 billion in annual volume in 2012 to $114 billion in 2023, a compound annual growth rate of roughly 15%. Yet even at this scale, annual secondary volume represents less than 1% of total private capital AUM ($13.7 trillion globally as of year-end 2023, per Preqin). The market has enormous room to grow.

Major secondary-focused firms include Lexington Partners (now part of Franklin Templeton), Ardian, Coller Capital, Whitehorse Liquidity Partners, and Blackstone Strategic Partners. Several of these firms have raised dedicated secondary funds exceeding $10 billion. The institutional infrastructure supporting the market — advisory firms like Jefferies, Evercore, and Campbell Lutyens that broker transactions — has also expanded significantly.

Risks and Considerations

Secondaries are not without risk:

  • NAV accuracy. Buying at a discount to NAV is only advantageous if the NAV is approximately correct. If underlying portfolio companies are overvalued, the “discount” may be illusory.
  • Unfunded commitments. When buying an LP interest, the buyer typically assumes the remaining unfunded commitment. If a fund is only 60% called, the buyer must be prepared to fund the remaining 40% when the GP makes capital calls.
  • Complexity and diligence. Evaluating a portfolio of 20–40 underlying companies across different stages and sectors requires significant analytical resources. This is not a passive investment.
  • Illiquidity. While the secondary market provides more liquidity than holding to the end of a fund’s life, secondary fund interests are still private and illiquid. Investors should plan for a 3–7 year hold.
  • Access barriers. Most secondary funds require minimum commitments of $250,000–$5 million. Some of the largest and best-performing funds are capacity-constrained and selective about their LP base.

The Bottom Line

The private market secondaries boom is not a temporary blip — it is a structural shift driven by the sheer scale of private capital, the denominator effect at institutional portfolios, and a higher interest rate environment that has slowed distributions and widened bid-ask spreads. For investors who can access the market, secondaries offer a compelling combination of discount entry, portfolio visibility, J-curve mitigation, and shorter duration relative to primary fund commitments.

At Rubiq, we help clients evaluate secondary opportunities within the context of their broader portfolio — weighing the liquidity tradeoffs, assessing manager quality, and ensuring any allocation fits alongside existing alternative investment and rebalancing strategies.