If the last 12 months were indicative of anything, it was that investors remain hungry for liquidity from their private markets portfolios — and that pursuit is driving unprecedented expansion in the secondary market.
According to secondaries specialist Coller Capital, the last year has seen almost four-fifths (79%) of investors declining to re-invest with at least one of their current GPs. According to the survey released in early December 2024, investors have attributed decisions to not reinvest with existing GPs to factors including liquidity constraints, performance concerns and asset mix changes. And this is where secondary offerings come into play.
Secondary market offerings have surged in recent months, with firms such as Ares Management, Pantheon, Accel-KKR and StepStone Group launching new vehicles targeting both retail and institutional investors. The strategy has expanded beyond private equity, as managers roll out dedicated funds for private credit and real estate secondaries.
In Coller’s survey, roughly 41% of global investors see M&A based growth and add-on acquisitions as the primary driver of value creation within GPs’ portfolio companies over the next two to three years. Meanwhile, almost three quarters (73%) of investors see digitalization and AI as the greatest opportunity for private equity firms to add value to their portfolio over a five-year horizon.
Still, only 32% of investors see GP’s exit timelines as being realistic. However, almost all (91%) investors are in favor of GPs having a standing exit committee, where an internal leadership team is tasked with deciding on exit timing and strategy for the whole portfolio, according to Coller Capital.
Key insights on what’s in store for 2025
Coller Capital
“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, chief investment officer 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.”
HarbourVest Partners
According to $127 billion private markets specialist HarbourVest Partners, there has been high transaction activity and a strong pipeline of deals building through the second half of 2024. This is consistent with the historical pattern of a year’s final quarter often being the most active period for secondaries transactions with what the team predicts will amount to $140 billion in investment activity, a figure originally calculated by investment bank Evercore.
HarbourVest has grown increasingly active in the secondaries market. The firm recently led Insight Partners’ third continuation fund, which closed in October with approximately $1.5 billion in commitments. Earlier in the 2024, HarbourVest held the final close of its Dover Street XI private equity secondaries fund at $15.1 billion, plus another $3.4 billion committed to secondary co-investment opportunities in the firm’s Secondary Overflow Fund V, which invests alongside Dover XI in select secondary transactions.
In HarbourVest’s recent outlook, executives point to the gradual lowering of interest rates and the end of a busy global election ushering in convergence between buyer and seller price expectations. “The narrowing of this gap is a much-awaited catalyst that is helping unlock much-needed exit activity and dealmaking, providing limited partners (LPs) with the liquidity they need to rebalance their portfolios or invest in new funds,” the team wrote.
In a bright spot for GPs, HarbourVest pointed to a quickly approaching debt wall due to be refinanced over the next 24-36 months that will likely boost private equity deal activity. Against this backdrop, the firm reported realizations to financial buyers rising 150% globally in terms of value in the first three quarters of 2024 (to $129 billion) relative to the same period in 2023. They point to a high level of regulatory and anti-trust scrutiny among large cap companies, while the mid-market has been very active with the sale of private equity backed assets at attractive prices for the sellers. This is leading to warming exit activity, while also increasing the flow of new deals, they added.
“Even if, as we anticipate, the exit market picks up through 2025, secondaries transaction volume is expected to remain robust for both LP-led and GP-led deals,” HarbourVest officials wrote. “Private equity asset turnover is still a relatively small proportion of the overall market (at around 2%), and this figure should grow over time.”
Franklin Templeton
The Franklin Templeton Institute, which is charged with offering educational material to the growing retail marketplace, added its own rosy outlook for secondaries that the team views as having benefited from being available at discounts as investors came to terms with a slow down of exit activity.
“We believe that there will likely be an acceleration in exits in the coming year. President-elect Trump has signaled a pro-business environment, loosening regulation, lower taxes and spurring growth,” the team wrote. “Coupled with the lower cost of capital, this should fuel merger and acquisition activity and lead to increased initial public offerings.”
They see institutional investors continuing to flock to the secondary market as a way to diversify their private equity holdings as well as to create liquidity to fund future deal flows.
The white paper adds that individual investors benefit from the shortened J-curve, shorter period before receiving distributions, and diversification (general partner (GP), vintage, geography, industry, etc.).
They also predict an expansion into other asset classes such as private credit, real estate and infrastructure, where the secondaries marketplace is still evolving.
Accelex
The AI-driven tech firm Accelex views secondaries as being on track for record-breaking growth ahead despite challenges related to data and structuring of offering documents.
“Private markets secondaries have experienced a boom over the past couple of years as investors seek to rebalance their portfolios and access liquidity in an increasingly challenging market environment,” said Michael Aldridge, president and CRO of Accelex. “This presents an opportunity for investors to buy funds years into their lifecycle, usually at a discount, and sellers to offload funds and realize returns without waiting for years and the uncertainty around final net returns from a traditional fund realization process.”
He added that as the sector scales up, so too must the technology that supports investors’ interest in clinching the potential of the ‘record-breaking’ growth in the secondaries market.
