Buyouts’ annual report explores the key market forces driving secondaries and fundraising amid the ongoing market volatility.
The secondaries market experienced a record-breaking year globally and in the US, driven by LPs’ overallocation to private equity, GPs’ pursuit of liquidity and increased demand for portfolio rebalancing. As fundraising in the secondaries space continues to outperform expectations and demonstrate resilience, liquidity in the ‘non-traditional’ segment is of interest to many. The report also explores how, amid market volatility and tariff-related uncertainty, new capital sources, emerging tech, evolving buyer-seller dynamics, enhanced back-office operating models and mid-market secondaries strategies are positioning secondaries as a central opportunity for today’s market participants.
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As more GPs and LPs turn to the secondaries market amid an ongoing liquidity crunch, weak exit markets and a slowdown in distributions, we explore how improved pricing, compelling supply/demand dynamics and structural innovations are driving transaction volumes and influencing the types of deals getting over the line. The report also looks at the evolution of the buyside and what the growing flow of capital means for one of the most undercapitalized corners of the private markets.
Since the launch of Buyouts Secondaries special in 2020, the secondaries market has grown significantly, largely due to the rise of GP-led and single-asset deals. The market also benefits from liquidity solutions like NAV financing, which is gaining popularity and now used in 20-30 percent of transactions. However, LPs are scrutinizing GP-led transactions, with many fearing they may negatively impact future fundraising. We explore these themes and more in the 2023 Buyouts Secondaries special report.
Five key trends in the rise of secondaries
Market growth is being driven by greater acceptance and increasingly diverse liquidity options.
To sell or not to sell: the LP’s dilemma with secondaries
LPs are facing a difficult choice as they balance liquidity challenges with the deep discounts on offer in the secondaries market.
Key questions: What implications do the SEC private fund reforms have for GP-led secondaries?
The regulator turned its attention to secondaries processes last year as part of a wider set of proposals designed to enhance disclosures in private markets.
Key questions: Do LPs need to conduct due diligence if they are rolling over exposure to a continuation fund?
Decision-making can be a resource-intensive process, although it is one that LPs are becoming more familiar with.
Key questions: Do GPs need to hire a third party to obtain a valuation and fairness opinion?
Proposed reforms in the US aim to make an independent fairness opinion a requirement in GP-led deals.
Key questions: How much does it cost to run a GP-led process and who pays?
The parties that bear the costs can vary according to the structure of the deal.
Evercore: Are single-asset secondaries a new normal in the GP-led space?
Single-asset continuation funds are becoming a disruptive force in the sponsor-to-sponsor M&A market, say Evercore managing director Jim Tilson and vice-president Mike Selverian.
GP-led secondaries’ ESG opportunity
Continuation funds could provide sponsors with more time and capital to execute transformative sustainability initiatives.
Carlyle AlpInvest on the importance of selectivity in today’s market
Continued volatility is bringing many opportunities for secondaries players. The biggest risk is spreading yourself too thin, says Carlyle AlpInvest’s global head of secondaries, Chris Perriello.
The rise of NAV lending
Structured solutions can provide much needed liquidity without forcing LPs to crystalize a loss.
Sixpoint Partners on getting GP-leds done in a downturn
Sponsors need to be realistic about price and commit incremental equity on top of a 100% rollover to stand out in today’s market, says Andrew Gulotta, a partner at Sixpoint Partners.
LPs scrutinize GP-leds
There is misalignment between investors and GPs on the topics of obstacles, red flags and expectations, a Capstone survey finds.
Pinebridge Investments on the comeback of ‘classic’ secondaries
With LPs looking to rebalance, the future of secondaries might look more like the past, with rewards for those GPs willing and able to take a back-to-basics approach, according to Steve Costabile, global head of private funds at PineBridge Investments.
Are LPs missing the continuation fund boat?
Investors that do not participate in GP-led opportunities could be incurring an opportunity cost of at least 15% over the long run.
Secondaries skyrockets to second-most popular strategy in Q1
More capital was closed on for private equity secondaries in the first quarter of the year than for any other strategy outside of buyouts.
The future of GP-led secondaries belongs to specialists, says TPG
As GP-led secondaries continue to grow in popularity, TPG’s Michael Woolhouse and Matt Jones argue that these are a distinct discipline from their LP counterparts, requiring specialization to flourish.
Secondaries Investor Advisory Survey 2023: Advisers choosey with mandates in choppy market
The average number of secondaries transactions advised on sat at 24 in a year where overall secondaries market volume was estimated at around $110bn.
LGT Capital Partners argues primary funds have the edge in the secondaries market
Firms that provide primary fund capital may have a distinct advantage in secondaries investing, say LGT Capital Partners’ Martha Heitmann and Andrew DiGeronimo.
W Capital Partners on why the GP-led market is about more than continuation vehicles
The compelling benefits of the GP-led market have fueled a 5x growth in depth and breadth, and that growth is only accelerating, say W Capital Partners’ David Wachter and Todd Miller.
Whitehorse on how secondaries is an undercapitalized market
Record deployment and fundraising headwinds are leading to limited dry powder, says Whitehorse Liquidity Partners managing partner Yann Robard.
Private secondaries have been on a growth trend for quite some time, but over the past two years in particular, investors have witnessed the incredible growth and maturation of the secondaries market. In part, this can be credited to the strength of the GP-led market – which Evercore says grew to $68 billion in volume in 2021, more than doubling the $32 billion of volume in 2020 – that is opening new doors to liquidity and value creation as private markets fundraises become ever larger and more frequent. Even in the face of significant macroeconomic challenges, the general sentiment across the market is that private secondaries are likely to continue on a path of meteoric growth.
Six key trends shaping the secondaries market
Secondaries continues to attract new investors, particularly as the GP-led trend dominates. Here are six takeaways from our 2022 special report on the market.
Second chances in secondaries
Price sensitive sellers are unwilling to accept material discounts, even in a volatile market. But there are still pockets of value to be found.
Evercore: A booming LP secondaries market is poised for further growth
David Markson, a managing director with Evercore’s private capital advisory, explores the dynamics driving the strong LP secondaries market and how long they are likely to remain in play.
Ares Management: GP-led secondaries is a buyers market
While significant capital has been raised to pursue the flourishing GP-led secondaries opportunity, supply/demand fundamentals remain highly attractive, says Barry Miller, partner in the secondary solutions group at Ares Management.
The LP/GP balancing act
LP sales made a comeback in the PE secondaries market last year, but GP-led sales continued their march to dominance, writes Keith Button.
The search for secondaries talent
Explosive growth has ignited a recruiting war among new and growing secondaries operations.
Neuberger Berman: GP-led deals shift secondaries market dynamics
As supply outstrips demand, GP-leds can prove compelling for secondaries buyers with the right strategy, say Neuberger Berman’s Tristram Perkins, global co-head of secondaries private equity; Frank Guglielmo, principal; and Victor Ko, principal.
Easing the path to GP-led deals
While GP-led clauses in fund agreements are not a silver bullet, certain LPA provisions could help GPs and LPs better navigate these transactions should they arise.
Sixpoint Partners on the importance of maintaining balance in a growing market
Interest in GP-led transactions is surging, but investors should maintain a holistic view of the secondaries market, say Sixpoint Partners’ Shawn Schestag and Andrew Gulotta, partners in the firm’s secondaries advisory business.
Why LPs are frustrated with single-asset deals
The secondaries community should take note of investors’ annoyance at unreasonable deadlines and the amount of work needed to make decisions on these deals.
LGT Capital Partners: GP-leds continue to take off worldwide
With so many GP-led deals coming to market, activity drivers vary in key markets, but demand is struggling to keep up, say LGT Capital Partners’ partner and co-head of secondaries André Aubert and partners Andrew DiGeronimo and Brooke Zhou.
On the minds of the Next Gen
Rising stars in the secondaries space share their thoughts on trends dominating the sector and challenges ahead.
Jefferies on navigating GP-led deals in uncertain markets
The secondaries market will continue on its growth trajectory and play an increasingly important role despite the threat of a market correction, says global co-head of private capital advisory at Jefferies, Scott Beckelman.
Joncarlo Mark: SEC proposals are a step in the right direction
A lack of transparency in GP-led deals can backfire on general partners, says former ILPA chairman and CalPERS veteran Joncarlo Mark.
Terms maker or terms taker?
While there are advantages to using an M&A process to set the price of a GP-led deal, buyers should not wear out this approach.
Whitehorse Liquidity Partners on the path to a $1trn secondaries market
What seems like a bold prediction at first, may well be a conservative estimate, writes Whitehorse Liquidity Partners managing partner Yann Robard.
Credit secondaries take off in wake of covid crisis
Recent events bode well for credit secondaries – a small and rapidly growing part of the overall secondaries asset class.
Manulife on new tools for the private equity allocator
GP-led secondaries join direct investments, co-investments and fund commitments to gain differentiated exposure to the asset class, say Jeff Hammer and Paul Sanabria, global co-heads of secondaries at Manulife Investment Management.
Fort Washington: A holistic approach to secondaries
It is important to be able to flex between traditional LP secondaries and GP-leds, say Fort Washington Capital Partners managing directors Rob Maeder and Steve Baker.
Q&A: How secondaries can support the Science Based Targets initiative
Although secondaries investors have limited influence on underlying assets, there are steps they can take to engage with ESG issues and promote science-based targets, says Tim Clare of Anthesis.
Even as the pandemic was setting in, the market made it clear to us as we prepared the 2020 iteration of the Buyouts Secondaries special report that the secondaries market was ready to take off.
In retrospect, those predictions couldn’t have been more spot on. Even in the face of a global pandemic, 2020 dealflow volumes were the third highest they’ve ever been since the inception of the secondaries market. With a significant amount of pent-up demand for diversified LP portfolios and no sign that the GP-led market is slowing down, 2021 could become a year for the record books.
Five reasons the future is bright for secondaries
Annual deal volume was the third-highest ever last year as the market endured the pandemic. Here are five things to know going into H2 2021.
Adams Street: Get ready for a two-speed market
With GP-led deals taking the spotlight in the secondaries market, Jeff Akers, head of secondaries investments at Adams Street Partners, shares what that could mean for risk-return profiles.
Evercore: Are diversified LP portfolios still core to secondaries?
Diversified LP portfolios have historically comprised the bulk of secondaries market dealflow, but not so in 2020, say Evercore senior managing director Nigel Dawn, vice-president Amy Heinemann and associate Richard Cutshall.
Innovation is in the air for the secondaries market
After an early pandemic lull, the secondaries market has made up for lost time as GP-led deals continue to march forward. But how could new players shape the market? And will LP trades get left in the dust?
Hollyport: As competition grows, where might alpha be found?
In a maturing market featuring multiple new entrants seeking to deploy greater amounts of capital, specialist expertise is key to delivering consistent outperformance, says Hollyport managing partner John Carter.
What’s on the minds of secondaries’ Next Gen Leaders
Over the past year we have witnessed a potential inflection point for GP-led deals as they grew to nearly half of annual volume in 2020. Here, four of Secondaries Investor’s Next Gen Leaders of Secondaries share their thoughts on the future of GP-leds.
Northleaf: Innovative secondaries solutions for mid-market managers
With so many options on how to provide liquidity to investors, Northleaf managing director Matthieu Ducharme details the structures available to mid-market GPs and the related pitfalls to avoid.
Continuation funds: Putting old wine in new bottles
Creativity is key as the secondaries market evolves and managers maneuver to hang on to their favorite assets.
Proskauer: Navigating GP-led liquidity processes
As GP-led processes continue gathering momentum and LP portfolio deals are likely to surge on pent up demand, Proskauer partners Mike Suppappola and Chris Robinson highlight key focus areas for buyers.
GP-led market dives into new waters
A wave of GP-led activity helped buoy the secondaries market last year. Now, co-GP relationships and sponsors of all shapes and sizes using secondaries capital are just around the corner.
Pomona: A fast-growing market brings greater complexity and opportunity
Secondaries GPs have had to get more granular in their approach through the pandemic while the competition continues to intensify, says Pomona Capital founder and chief executive Michael Granoff.
Campbell Lutyens: Get ready for the return of the LP-led secondary
Concentrated GP-led secondaries dominated in 2020, but buyers are seeking diversification once again, says Gerald Cooper, head of Campbell Lutyens’ North America secondaries advisory.
Five big changes to the secondaries market in 2020
The pandemic has certainly impacted the secondaries market – and it hasn’t been all bad.
W Capital Partners: Looking beyond continuation vehicles
Buyout and growth capital investors are embracing a broad range of GP-led solutions, say W Capital Partners managing partner and co-founder David Wachter and partners Blake Heston, Todd Miller and Katie Stitch.
Nine ‘new’ firms making waves in secondaries
M&A advisory businesses and mega-managers are storming a flourishing secondaries industry. We track the key players to watch.
PJT: Preparing for the next generation of secondaries
The secondaries market universe is growing. ‘To boldly go where no person has gone before,’ participants will be judged on market positioning and applicable returns, say PJT Park Hill managing director Darren Schluter and partner David Perdue.
Data room: A record-breaking year for secondaries
The average size of US-based funds nearly doubled year-on-year in 2020, with most closed funds gathering more than they initially sought.
The initial shock of the covid-19 pandemic is wearing off and markets are starting to adjust to the new reality. In the secondaries market, a brief pause to allow valuations to catch up with the new paradigm is expected to be followed by a flurry of activity as liquidity needs drive dealflow.
If the global financial crisis a decade ago taught us anything, it is that even in a steep downturn there is plenty of upside to be captured. Even with slow traditional secondaries dealflow, there’s still plenty of work to be done, and structured transactions offer opportunities for savvy investors to stay in the game.
Five points on the secondaries market: Not all doom and gloom
Activity is largely paused with the global spread of covid-19, but there are bright spots to look out for.
Finding opportunity in a crisis
The economic side of covid-19 has similarities with the global financial crisis, but secondaries now has a bigger toolkit at its disposal to support long-term growth.
Akin Gump: Can secondaries shake off the effects of covid-19?
After an initial secondaries slowdown, the market could recover with a vengeance, say Akin Gump partners Mary Lavelle and Trey Muldrow.
The secondaries market’s black swan
The economic shock caused by the coronavirus is already filtering into the asset class.
As the market dives, secondaries take a safety stop
In two surveys published by Setter Capital in March and April, buyers and fund managers agreed that the secondaries market is in for a slow year.
Five tips for running a fair auction
Running a secondaries auction process that works smoothly for all parties and is not beset by conflicting interests is not easy, particularly in GP-led transactions. Here, advisors share their tips and a buyer gives additional perspective.
Evercore: In a stalled market, preferred equity powers forward
Even with traditional secondaries at a standstill, preferred equity could prosper in the pandemic, write Evercore’s Nigel Dawn and Dale Addeo
Upwelling Capital: How do we get out of this misaligned mess?
GPs and LPs both need to be realistic and flexible to reconstruct alignment in the most challenging situations, write Joncarlo Mark, Jim Moody, Vik Salh and Jesse Rodriguez of California-based boutique investment advisor Upwelling Capital Group.
Four ‘Young Guns’ share their thoughts on the secondaries market
Alumni of Secondaries Investor's annual grouping of outstanding professionals under 35 share lessons learned and how they've been affected by the covid-19 crisis.
Landmark Partners: Structuring creatively in volatile markets
Changing markets present opportunities for those with the experience and resources to find creative solutions, write Landmark Partners’ Barry Miller, Geoffrey Mullen and Avi Turetsky
How Whitehorse became the most envied firm in secondaries
Whitehorse Liquidity Partners is a rising star of the preferred equity market, led by one of the industry’s most charismatic figures. What’s behind its success? A strategy treated as ‘genius’ by some and with wariness by others.
GP-leds, it’s time to prove your worth
The manager-initiated secondaries market has long touted itself as a creative panacea; in these challenging times the strategy must step up to the plate.
Mega-funds front and center
Driven largely by massive hauls from the likes of Blackstone and Neuberger Berman, 2019 secondaries fundraising eclipsed that of 2018 and average fund size hit a historic high.
Three key trends in secondaries
Maturing market attracts a more regular flow of LP and GP sellers as the buyside expands.
Secondaries providing relief to a market under pressure
LPs are turning to the secondaries market to address liquidity constraints amid improved pricing, as compelling supply/demand dynamics and structural innovations help fuel LP-led dealflow.
Integrating GP stakes and secondaries
Blackstone’s move to combine its GP stakes and secondaries businesses raises questions about how players in both markets should address potential conflicts of interest.
Behind the growing pool of secondaries capital
Money continues to flow into this most undercapitalized corner of private equity.
Northleaf Capital Partners: Secondaries is oiling the wheels of private equity
As contributions exceed distributions in the private equity asset class, the secondaries market is proving more important than ever, says Northleaf Capital Partners managing director Matthew Sparks.
Doubling down on GP commitments
Going beyond standard commitment expectations in continuation fund transactions can help sponsors demonstrate alignment.
Dawson Partners: Is there liquidity on the horizon?
Following a drought in distributions, private equity dealmaking is showing signs of awakening in 2024, writes Yann Robard, managing partner at Dawson Partners.
The allure of GP-led secondaries
Muted M&A activity and liquidity demands are prompting more sponsors to consider moving assets into continuation funds, but competition is fierce.
Alter Domus on codifying best practice for secondaries
The SEC private fund rules will provide a regulatory framework around GP-led secondaries, ultimately supporting their continued growth, say Tim Toska and Emily Ergang Pappas of Alter Domus.
Deferrals become commonplace in GP-leds
More transactions are using a delayed payment structure in a bid to bridge mismatches in pricing expectations.
LP appetite for secondaries is on the up
The proportion of investors looking to back private equity secondaries funds has been rising steadily since 2020.
Neuberger Berman: Motivated sellers create buyers’ market
Liquidity challenges seem to be fueling secondaries dealflow, presenting compelling opportunities for buyers, say Tristram Perkins, Ben Perl and Victor Ko at Neuberger Berman.
Ropes & Gray on why the tide is turning toward GP-leds
After a strong year for LP-led secondaries sales, buyers are shifting their attention to GP-led transactions once again, say Ropes & Gray’s Isabel Dische, Debra Lussier and Paul Van Houten.
From proof of concept to lasting record
The secondaries industry is stepping up its reporting of the performance of continuation fund exits.
New 2ND Capital on moving down market in secondaries
An abundance of deal opportunity and shortage of competition mean that mid-market GP-leds are the place to be, say New 2ND Capital partners Clay Cole and Evert Vink.
Will the rise of mosaic deals affect returns?
As the LP-led market grows ‘white hot,’ mosaic transactions are sparking debate among some practitioners over the impact on returns.
Market maturity prompts secondaries shifts, says Gibson Dunn
As its popularity continues to grow, the secondaries market is seeing increased levels of innovation, competition and regulatory scrutiny, say Gibson Dunn’s Shukie Grossman, Sean McFarlane and Kate Timmerman.
Here comes the secondaries operating partner
Secondaries capital that comes with deep sector expertise may define the next iteration of the GP-led market.
W Capital Partners on Secondaries 3.0 and going beyond continuation funds
The next phase of secondaries will see GPs embracing a broader range of interim liquidity solutions, say David Wachter and Todd Miller at W Capital Partners.
The importance of alignment in secondaries
As lines blur between secondaries and co-investments, a strong rationale remains critical to LPs accepting continuation vehicles, say panelists at PEI Group’s NEXUS summit.
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