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<\/a><\/p>\nOver the past two decades, however, the secondary market has changed significantly. Annual transaction volume reached $240 billion in 2025, surpassing $200 billion for the first time. As LPs have broadened their use of secondary sales for portfolio management and liquidity, the market has become more dynamic and mainstream. At the same time, the steady increase in private market assets under management (AUM) has expanded the supply of potential transactions.<\/p>\n
The rise of GP-led secondaries\u2014including continuation vehicles and fund restructurings\u2014has introduced new sources of liquidity, deal flow, and innovation. Meanwhile, increasing recognition by institutional investors of the strategic benefits of secondaries, coupled with the proliferation of intermediaries, has driven substantial growth in fundraising and market participation. This heightened demand has led to a growing universe of buyers, the formation of larger secondary funds, and the introduction of evergreen capital, further enhancing market capacity and supporting long-term growth.<\/p>\n
In tandem with this evolution, institutions of all types and sizes are increasingly adding exposure to secondaries within their PI portfolios. As of December 31, 2015, approximately 34% of endowments and foundations had exposure to secondaries; by December 31, 2025, that figure had risen to 78%. Among private investors, the share rose from 38% to 71% over the same period. However, pension funds saw a more modest reduction from 45% to 38%, likely reflecting the more prescriptive investment guidelines and liability-driven frameworks that govern many pension programs (Figure 2).<\/p>\n
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The secondary market\u2019s transformation has not only expanded the scale and sophistication of its participants but also enhanced its role in portfolio management. With this context in mind, the following section explores how secondaries can deliver value\u2014both in the early stages of a PI program and as a lasting source of portfolio optimization.<\/p>\n
Secondaries: A permanent pillar of portfolio management<\/h2>\nEarly benefits<\/h3>\n
For investors launching a PI program, an early allocation to secondaries can accelerate cash flows, mitigate the impact of the J-curve, and provide immediate diversification. Together, these features can help smooth returns and reduce early concentration risk.<\/p>\n
Accelerated cash flow & J-curve mitigation<\/h3>\n
Unlike primary fund commitments, which are blind-pool investments, secondaries provide LPs with exposure to established assets and the related benefits of a more immediate performance profile. Secondary funds often feature a faster return of capital, as buyers largely acquire interests in funds that are partially or fully invested, allowing LPs to receive earlier distributions rather than waiting through the initial investment period. By entering at a later stage in the fund\u2019s life cycle, LPs can avoid much of the early negative return profile known as the J-curve.<\/p>\n
Secondary funds have averaged 13% distribution to paid-in capital (DPI) in the first three years of a fund\u2019s term and nearly 40% DPI in the first five years, meaningfully higher than direct buyout, growth, and venture funds (Figure 3).<\/p>\n
Secondary buyers often seek to acquire assets at a discount to net asset value (NAV), which can provide a margin of safety and improve the potential for attractive risk-adjusted outcomes as the underlying investments mature and are realized at or above NAV. By aggregating assets acquired from a range of existing portfolios, secondary funds deliver immediate diversification across vintage years, asset classes, geographies, and GPs. These benefits are particularly relevant in the early stages of a PI program, but they do not disappear once the portfolio matures.<\/p>\n As a PI portfolio grows and matures, the demands of portfolio construction and management can become increasingly nuanced, requiring ongoing flexibility. Investors must manage liquidity, capital deployment, concentration, and performance through changing market conditions. Secondaries can continue to support these objectives well beyond the early years of a program.<\/p>\n A defining feature of secondary funds is their ability to deliver competitive, risk-adjusted returns across a range of market environments. Secondary funds have delivered median internal rates of return (IRRs) broadly comparable to private equity (PE), while exhibiting significantly tighter return dispersion and more limited downside risk (Figure 4). On a TVPI basis, however, secondaries characteristically offer a lower and narrower range of outcomes than PE or venture capital\u2014reflecting the more mature, de-risked nature of the underlying assets. For investors prioritizing consistency and capital preservation over maximum upside, this trade-off is a feature rather than a limitation\u2014secondaries are designed to compound capital reliably, not to swing for outsized multiples.<\/p>\n By focusing on portfolios with greater transparency, less blind-pool risk, and entry prices that may be below NAV (Figure 5), secondaries may be less exposed to some of the risks inherent in primary investing. While discounted pricing can support returns, it is only one driver alongside underlying asset quality, portfolio maturity, and the pricing discipline of experienced secondary managers\u2014who may also be positioned to capitalize on dislocations or stale valuations driven by reporting lags. We believe risk-return dynamic positions secondaries as a reliable means of compounding capital with a more predictable risk profile (Figure 6).<\/p>\n Notably, recent transaction activity has been driven more by seller liquidity needs and portfolio management objectives than by the broad distressed selling seen during the Global Financial Crisis. Taken together, these characteristics may offer investors a reliable means of compounding capital and support the case for maintaining a consistent allocation to experienced secondary managers across market environments.<\/p>\n Secondaries can also facilitate efficient capital redeployment for LPs as portfolios evolve. Because secondary funds acquire seasoned assets that are often closer to realization, distributions may be returned more quickly than with primary commitments\u2014giving LPs the flexibility to recycle that capital into new PI opportunities, meet capital calls, and maintain target allocations without requiring additional capital infusions.<\/p>\n Figure 7 presents a secondaries allocation scenario analysis comparing three hypothetical PI portfolios over a ten-year period, each assuming annual commitments of $10 million with full reinvestment of all distributions. Portfolio A maintains a consistent allocation to secondaries throughout the period; Portfolio B includes an early allocation to secondaries but phases it out over time in favor of primary funds; and Portfolio C allocates exclusively to primary funds.<\/p>\n The results are instructive. Portfolio A\u2019s projected distributions exceed those of Portfolio B by nearly 7% and those of Portfolio C by more than 12%.\u2014incremental capital that can be redeployed into whatever strategies are most attractive at the time, enhancing both liquidity and portfolio optionality. This distribution advantage is most evident in the early years, when accelerated distributions help mitigate the J-curve and provide capital for reinvestment. While the compounding effect of reinvested distributions also results in a higher projected terminal portfolio value for Portfolio A by year ten, the more immediate and durable benefit is the enhanced liquidity and capital availability that a consistent secondaries allocation provides throughout the life of the program. These results support treating secondaries as a permanent component of a PI portfolio rather than a tactical or transitional allocation.<\/p>\n The growth of GP-led secondaries\u2014which have represented an increasing share of market volume this decade and between 13% and 15% of annual sponsor-backed exit value from 2022 to 2025\u2014has broadened the strategic toolkit available to LPs (Figure 8). These structures, especially continuation vehicles, allow investors to tailor exposures in response to changing market conditions and specific investment objectives.<\/p>\n By electing to roll into a continuation vehicle, LPs can maintain or increase exposure to high-quality, mature assets and potentially capture further upside with more asset-level underwriting visibility. Early data suggest that single-asset continuation vehicles can perform broadly in line with buyout funds, with tighter dispersion of returns. At the same time, the available performance dataset remains nascent and realized distributions for more recent vintages are limited. As the market continues to mature and more transactions season through their full lifecycle, a clearer and more comprehensive performance picture is expected to emerge.<\/p>\n Alternatively, choosing to \u201csell\u201d provides immediate liquidity and the opportunity to redeploy capital. This dual capability\u2014playing offense by pursuing upside, or defense by managing risk and rebalancing\u2014underscores the strategic flexibility that GP-led secondaries bring to modern portfolio management.<\/p>\n These decisions are rarely straightforward and as such, LPs must carefully evaluate the terms of the continuation vehicle\u2014including carried interest structures, management fees, and governance rights\u2014to ensure alignment of interests and assess whether the transaction represents fair value. Compounding this complexity, LPs are also often required to make these decisions within a limited timeframe, typically 20\u201330 business days, with significant implications for their portfolio. A disciplined framework for evaluating GP-led opportunities is therefore essential for LPs seeking to navigate these transactions effectively and maximize long-term portfolio value.<\/p>\n In addition to supporting long-term portfolio management, secondaries can also serve as a powerful tool for generating liquidity and making tactical portfolio adjustments. In modern PI portfolios, both the sale of LP interests and LP election decisions in GP-led transactions have become increasingly important mechanisms for meeting portfolio objectives.<\/p>\n Secondary liquidity events are no longer limited to forced sellers. LPs increasingly use them to generate liquidity from historically illiquid assets, rebalance PI allocations, rotate out of legacy or deprioritized managers and strategies, respond to regulatory or policy changes, and simplify administration burdens by selling tail-end positions.<\/p>\n Secondary sales can also help potentially optimize outcomes by selling at favorable points in a fund\u2019s performance cycle. Cambridge Associates data show that the median US buyout fund reaches its maximum TVPI in year 11 before plateauing or declining, which may make later-life sales worth considering in some circumstances (Figure 9). This underscores the normalization of secondary sales as a strategic portfolio management tool rather than a sign of distress.<\/p>\n<\/a><\/p>\nDiscounts & \u201cinstant\u201d diversification<\/h3>\n
Enduring benefits<\/h2>\n
Consistent returns & resilience amid volatility<\/h3>\n
<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\nEfficient capital redeployment<\/h3>\n
<\/a><\/p>\nGP-led secondaries: Offense and defense for the modern PI portfolio<\/h3>\n
<\/a><\/p>\nSecondaries as a liquidity generator<\/h2>\n
Secondary liquidity: A strategic portfolio lever<\/h3>\n