Diversification, potentially quicker returns and the opportunity for discounts — these are key traits of investing in secondaries, one of the fastest-growing segments of private equity.
In a turbulent 2023 alone, secondary funds raised a record $91 billion of capital, almost three times the amount collected in 2022.¹ Why is the appetite so strong?
Our research details the forces and trends shaping secondaries. Here’s a sneak peek into the latest report:
- Demand for liquidity and portfolio management is fueling demand for secondary deals, contributing to an attractive buyer’s market.
- GP-led and LP-led deals have evolved and could bring contrasting but complementary benefits to investors' portfolios.
- Faster distributions and potentially lower risk than primary fund commitments are among the key benefits.
- Secondaries seem to have plenty of scope to continue growing over the coming year and beyond.
Stage is set for future growth
By Sanjay Gupta, Moonfare’s Chief Investment Officer
Secondaries are nearly as old as private equity itself, but their role has significantly evolved over the years. Once considered a backdoor exit for underperforming assets, today's secondary market is an increasingly sophisticated space offering a range of potential benefits.
Existing private equity investors use it to prune their portfolios and manage liquidity. Meanwhile, fund managers can leverage the secondary market to extend ownership of their prime assets and potentially maximize their value. Indeed, secondaries have established themselves as one of the key exit routes, particularly in times of market dislocation.
This report dives into the current state of the secondary market. It breaks down the key forces shaping this space and the evolving appetite for these investments. It outlines the compelling advantages of secondaries, such as immediate diversification, potentially quicker returns and the opportunity to acquire assets at a discount.
The report also highlights different transaction types and their complementary traits, essential for building a well-rounded portfolio.
Finally, we look towards the future. The ascent of secondaries has been steady and accelerating in recent years. We believe that the foundation is laid for an ever-larger role these investments might play in the broader private equity ecosystem.
We hope you enjoy this report. If you have any questions or thoughts, please feel free to send them my way.
¹ https://www.lazard.com/research-insights/lazard-2023-secondary-market-report/
- 1 Minimum investment may vary by country and local regulation.
- 2 Source: McKinsey "Private Markets Annual Review 2022"
- 3 Past performance is no guarantee of future returns.