Secondaries Market Boom Expected to Continue — Evening Brief – 01.02.25 

The trends from 2024 suggest a continued emphasis on liquidity in private markets, with the secondary market experiencing significant growth. Private markets, while offering attractive long-term returns, often tie up capital for extended periods, creating challenges for investors needing flexibility. The secondaries market has emerged as a critical pillar of private equity, experiencing record-breaking activity last year.  

The desire to rebalance portfolios, capitalize on market opportunities, or meet liquidity needs has amplified demand for options to exit private investments early. Both institutional and retail investors are utilizing the secondary market to manage their private market exposures. 

The past year has seen nearly four-fifths (79%) of investors decline to re-invest with at least one of their current general partners, according to a December survey by secondaries specialist Coller Capital. Investors have cited liquidity constraints, performance concerns, and asset composition changes as reasons for their decision not to reinvest. This is where secondary offerings become a viable option for investors. 

In recent months, there has been a significant increase in the number of secondary market offerings. Firms such as Pantheon, which, in December, filed for the registration of the AMG Pantheon Infrastructure Fund, an evergreen fund that provides private wealth investors with access to infrastructure secondaries investments, and StepStone Group, which announced the final close of StepStone Secondary Opportunities Fund V, L.P. and related separate accounts at $7.4 billion in September, have introduced new vehicles that are designed to appeal to both retail and institutional investors. The strategy has expanded beyond private equity, as managers have introduced dedicated funds for private credit and real estate secondaries. 

Coller’s survey indicates that approximately 41% of global investors anticipate that M&A-based growth and add-on acquisitions will be the primary drivers of value creation within the portfolio companies of GPs in the next two to three years. Meanwhile, 73% of investors regard digitalization and AI as the most promising opportunities for private equity firms to enhance the value of their portfolios over a five-year period. 

Nevertheless, only 32% of investors regard GP’s exit timelines as realistic. However, Coller Capital reports that nearly all investors (91%) are in favor of GPs establishing a standing exit committee. This committee would be comprised of an internal leadership team that is responsible for determining the exit strategy and timing for the entire portfolio. 

“The liquidity crunch and a lull in M&A activity has led investors to exercise a degree of caution when it comes to reinvestments, yet LPs are still showing a strong appetite to expand their allocation to private markets,” said Jeremy Coller, CIO and managing partner at the $36 billion firm.  

“While GPs should heed the call from LPs to provide more transparency on exits and distributions, the increasing prevalence of both private credit and secondaries as key pillars of alternative asset allocation point to a promising long-term growth outlook.”