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What’s Driving Continued Appetite for Secondaries Transactions?

Secondaries market growth has sustained as LPs and GPs view the investment as a strategic option for actively managing their private portfolios.

The secondaries market has been on the rise for some time, but factors shaking up the industry within the last few years have spurred a dramatic spike. Limited partners (LPs) and general partners (GPs) have increasingly turned to the secondaries market as a strategic exit and entry point for their private investments.

When we speak of secondaries investing, there are two distinct classifications. In certain markets, particularly in Europe, secondaries are their own alternative asset class where GPs transact by selling and purchasing entire funds. In other markets, secondaries investing includes the buying and selling of individual holdings by both LPs and GPs. Both categories have seen considerable growth. In the first half of 2021, secondaries transaction volumes increased 171% after slowed activity during the onset of the pandemic.1

As we work with our private capital manager clients on fund administration efforts, this uptick is palpable, from both GP and LP perspectives. Today, there are recognized strategic reasons for both GPs and LPs to transact in the secondaries market. Let’s discuss the factors driving the growth.

  • Active management – From an LP perspective, actively managing their private asset allocation through the secondaries market (rather than waiting for the fund to wind down after the typical seven-to-10 year lifecycle) provides the best of both worlds – seeing high returns associated with the private capital world while avoiding the long lock-up periods of a funds’ full cycle. There are some LPs that don’t stay for the duration, as they’ve already seen some benefit and want to let go of the risk of low-liquidity. LPs have become more sophisticated in their private asset allocation over the years, and we know now that rather than seeing their capital leaving privates entirely, it is likely just being managed in a more active, strategic way.

From a GP perspective, some of the same benefits apply for those who liquidate positions in their funds. They’re likely taking a similarly active approach, analyzing deep elements of the fund and acting to protect long-term portfolio returns. At the same time, continued development of the underlying assets past the initial fund timeline in order to achieve further returns has also become a common active management tactic for GPs – just because the fund has run out of road doesn’t mean the growth potential of the remaining assets has. These “continuation funds” have seen significant growth and made up 55% of the secondaries market in the first half of 2021, according to private capital advisory firm Campbell Lutyens.2

  • Pandemic-fueled rebalancing – As the pandemic changed the world in the first quarter of 2020, many worried we would see a repeat of 2008’s selloff of private investments as LPs scrambled for liquidity while markets experienced volatility. But 2020 selloffs never materialized. LPs largely held on to their private investments and waited for the initial uncertainty to pass.

While we’re still dealing with the pandemic on a global scale, many industries have continued to function, affording both GPs and LPs a bit more certainty from an investment perspective. With this in mind, LPs are rebalancing their private investment portfolios through the eyes of a world that operates through the risk of COVID-19, and they must do so via the secondaries market. That looks different depending on the LP. For example, while one LP may be seeking to let go of their stake in a commercial real estate fund (whether sponsored by a GP or at the portfolio level), another may want to come in and pick it up, hoping to benefit from the payoff years down the road when companies bring their workforces back to the office. And while one GP may not see the potential for the turnaround of a purchased hospitality company within the timeline of their fund, a different GP may take on that investment hoping to see a rebound in the hospitality space ten years down the road when their fund will be winding down.

  • ESG emphasis – While the idea of ESG (environmental, social and governance) and responsible investing is not a new phenomenon, the focus on it has risen over the last few years at a speed and to a level of enthusiasm that we haven’t experienced before. ESG requires a high degree of transparency – something that is not always inherent to private capital. But for LPs, by investing through the secondaries market in a fund three or four years past its vintage, they have insight into the fund’s previous deals and gain a sense of whether its investment strategy is a good fit for their portfolio and ESG goals.

Ultimately, the secondaries market alleviates the blind pool risk that LPs take on when investing in a private capital fund from the outset. From another angle, many investors are rebalancing their public portfolios to meet their ESG goals. In this process, some feel that they’re giving up returns in favor of prioritizing responsible investments. To make up for it, they may turn to the private capital space and secondaries market for the first time or in higher allocations in order to boost their overall returns.


The private capital space has boomed over the last decade. As we’ve seen GPs and LPs become more strategic and sophisticated in their private capital investing during that time, it’s only natural that the secondaries market has followed.

Moreover, LPs have embraced secondaries to the point where they will use it as an entry point to private investments and also tend to keep their capital in the private space even when exiting a specific private fund. As for the GP side, now more than ever, secondaries investments are embraced as a strategic exit option for incumbent GPs and as a growth strategy for secondaries managers who look to take the funds’ residual investments to their full potential.

GPs will have to navigate a private capital world where the secondaries market plays a larger role, and seamless execution of these transactions, whether LP- or GP-led, can strengthen the manager-investor relationship – a particularly valuable prospect as the private capital manager field grows increasingly crowded with competition.

Given this, GPs should ensure they’re working with the right partners to support general fund administration, and the exit side of one investor and the onboarding of a new investor as the transactions take place. For example, a fund administration partner will play a role in conducting due diligence on LPs hoping to secondarily buy their way into a fund, ensuring they’re initiating a relationship with an investor that has good credit and has a clean, trustworthy past and background. They’ll also take the lead on all middle- and back-office tasks that accompany GP transactions on the secondaries market.

It’s clear the secondaries market still has significant growth prospects ahead. As LPs continue to actively manage their private investments, GPs’ preparedness for dealing in the secondaries market, both via LP transactions and their own, may be a key feature as they make their manager selections. As such, GPs that continue to stay relevant to current and prospective investors will lean into this trend and arm themselves with the right resources and partners.


1 Pensions & Investments, “Secondaries volume surges in first half of 2021 – survey”, August 4 2021.
2 Campbell Lutyens, “H1 2021 Secondary Market Overview”, September 1 2021.

Kimberly Evans

North America Head of Private Capital Fund Services

Clive Bellows

Head of Global Fund Services, EMEA

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