Unlocking Liquidity: The Growth of Private Market Secondaries

Private markets are known for their illiquidity compared to public securities that allow investors to unwind positions quickly. However, private equity returns have historically outperformed public equities due to risk-return profiles. While private market investors reap liquidity premiums, investors must balance cash access and long-term return potential.

Exits, typically via trade sale or IPO, are the main source of liquidity in private markets. However, an uptick in private market secondaries now provides a viable solution amid a depressed exit environment. A secondary transaction is a trade in which an investor purchases an asset from another investor rather than injecting new capital into a business.

The volume of secondary transactions has increased significantly over the past decade. According to Jefferies PCA, total global secondaries market transaction volumes were $108 billion in 2022, compared to $26 billion in 2012.

The secondaries market was initially perceived as a market for distressed LPs, resulting in discounted asset prices. However, investors embrace secondaries for various reasons, including strategic portfolio adjustments and capital reallocation.

The venture capital and private equity ecosystem is younger than many realise, and the growth of the secondary market reflects a new stage of maturation for the private market. As companies stay private for longer, a vibrant secondary market has emerged. This market allows early-stage investors and GPs to monetise their holdings before an IPO or trade sale, and specialist investors and secondary funds access to attractive private assets.