Private markets were built around a simple bargain: accept years of illiquidity in exchange for access to assets that public markets cannot easily provide. That bargain becomes harder to sustain when investors need to rebalance portfolios, meet cash requirements or respond to changing allocation targets. The secondaries market is becoming the mechanism that helps reconcile those competing demands.
The shift is structural rather than cyclical. Private companies are taking longer to exit, while institutional portfolios have accumulated larger allocations to private assets. McKinsey estimates that the typical portfolio company is now held for more than six and a half years, while distributions as a share of private-equity AUM remained unusually low in 2025. As a result, private market liquidity is becoming a portfolio-management issue rather than simply an exit issue.
That is creating room for private equity secondaries, where ownership can change hands without forcing the underlying company into an immediate sale. For institutional investors, family offices and other holders of alternative investments, that flexibility is becoming increasingly valuable.
Why Private Markets Are Creating a Liquidity Problem
The traditional private-equity model assumes that capital can remain committed through an investment cycle and eventually return through an IPO, strategic sale or sponsor-to-sponsor transaction. But the timing of those exits depends on market conditions that investors cannot control.
Higher financing costs, valuation disagreements and uneven M&A activity have contributed to longer holding periods. McKinsey’s 2026 private-equity analysis describes the traditional five-year holding period as increasingly outdated and identifies liquidity solutions as a lasting part of private-market infrastructure.
That creates an unusual tension. An LP may still believe strongly in a manager or portfolio company while simultaneously needing cash. A pension fund may need to rebalance its allocation. An endowment may want to make new commitments without increasing its overall exposure to private assets. A family office may want to reduce concentration in one fund vintage. An insurance company may have portfolio or regulatory considerations that make a sale attractive.
The denominator effect can add another layer of pressure. When public-market assets fall relative to private holdings, private assets can represent a larger percentage of a portfolio even without additional commitments. Selling selected fund interests can restore the intended allocation without abandoning private markets altogether.
For investors, the implication is important: liquidity demand does not necessarily signal a negative view of private assets. It can simply reflect the practical need to manage a portfolio whose private component has become too large, too old or too concentrated.
How the Secondaries Market Works
The secondaries market provides several routes for transferring private-market exposure.
In an LP-led secondary, a limited partner sells its interest in one or more private funds to a secondary buyer. The buyer acquires an existing portfolio rather than committing to a newly launched fund. This can provide the seller with liquidity while giving the buyer exposure to assets that are already partly seasoned.
A GP-led secondary works differently. The general partner initiates a transaction involving one or more assets held by an existing fund. A continuation fund can acquire those assets, allowing existing LPs to receive liquidity or roll their interests into the new vehicle.
Single-asset transactions concentrate on one company, often allowing a GP to retain ownership of a high-conviction investment while giving existing investors an exit. Multi-asset transactions transfer several companies together and can provide greater diversification.
| Secondary Transaction Type | Primary Seller Need | Key Investor Consideration |
|---|---|---|
| LP-led secondaries | Liquidity, rebalancing, concentration reduction | Portfolio quality, manager exposure and pricing |
| GP-led secondaries | Extend ownership while creating liquidity | Asset quality, valuation and GP alignment |
| Continuation funds | Retain high-conviction assets beyond original fund life | Governance, pricing and future value creation |
| Single-asset transactions | Liquidity from a specific mature investment | Concentration and company-specific risk |
| Multi-asset transactions | Portfolio liquidity and exposure management | Diversification, underlying assets and complexity |
Preqin says continuation funds have become mainstream in private equity and represent almost half of the secondaries market, illustrating how far the market has moved beyond simple LP portfolio sales.
For investors, the attraction is flexibility. A seller can change its exposure without waiting for the underlying company to exit. A buyer can acquire seasoned fund interests with greater visibility into underlying assets. But the trade-off is complexity: buyers must underwrite assets, managers, valuation assumptions and transaction structures rather than relying on a straightforward public-market price.
Why Liquidity Demand Is Fueling Growth
The strongest force behind the market is the growing mismatch between private-market ownership and private-market cash flows.
McKinsey reports that global secondary transaction value reached $240 billion in 2025, up 48% from the previous year. GP-led volume reached $115 billion, while average LP transaction size also increased. The firm links this expansion directly to the search for liquidity in an environment of low distributions. Jefferies independently reported the same $240 billion total for 2025, calling it the largest year on record.
The supply is not coming from one type of investor. LPs can sell because a fund has matured, because their allocation has become too concentrated or because they need capital for new commitments. Pension funds, endowments and sovereign wealth funds can use sales as part of broader portfolio construction. Family offices can use them to manage exposure across managers and vintages.
GPs face a different problem. A manager may own a high-quality company that still has substantial value-creation potential, but the original fund is approaching the end of its life. A continuation vehicle can provide liquidity to existing LPs while allowing the GP and new investors to retain exposure.
Goldman Sachs describes this broader liquidity demand as creating opportunities for businesses that can provide capital against private assets, particularly as pricing disagreements make traditional exits more difficult.
The important point is that secondary transactions solve different problems for buyers and sellers. Sellers monetize existing positions. Buyers acquire exposure to assets that may have already passed through some of the early-stage uncertainty of a primary investment.
The Investment Opportunities and Risks
For buyers, private equity secondaries can offer immediate diversification across managers, strategies, companies and vintages. BlackRock describes secondaries as a key source of private-market liquidity while highlighting diversification, pricing and potentially shorter duration as important characteristics.
Pricing can also create opportunities. Secondary interests often trade below reported NAV, although the size of any discount varies significantly according to asset quality, market conditions and transaction structure. A discount is therefore not automatically evidence of undervaluation.
A 9% discount on a high-quality portfolio with credible cash flows may be more attractive than a 20% discount on assets with weak fundamentals, stale valuations or uncertain exit prospects. Buyers must determine whether the discount compensates for risk or simply reflects it.
Information asymmetry matters as well. Private assets do not trade continuously, and reported NAV may not reflect what a buyer can actually realize. Transaction fees, legal costs, financing structures and performance fees can further affect returns.
Continuation vehicles introduce another layer of complexity. The GP often remains involved, creating alignment but also potential conflicts. Existing LPs need sufficient information to decide whether to sell or roll their exposure. McKinsey notes that LPs have raised concerns about challenged assets and conflicts in continuation vehicles, underscoring the importance of transparency and alignment.
For investors, therefore, the opportunity is not simply buying private assets at a discount. It is identifying situations where the price, underlying quality, structure, manager and expected exit path justify the risk.
Comparing Secondary Market Opportunities
Different structures appeal to different investors because they offer different combinations of liquidity, diversification and control.
| Liquidity Driver | Opportunity for Secondaries | Primary Risk |
|---|---|---|
| LP portfolio rebalancing | Acquire diversified fund interests | Inconsistent asset quality |
| Fund maturity | Access seasoned assets with greater visibility | Limited remaining upside |
| GP liquidity needs | Invest alongside established managers | Conflicts of interest |
| Continuation funds | Retain exposure to high-conviction companies | Valuation and governance risk |
| Portfolio concentration | Reduce or acquire targeted exposure | Company or sector concentration |
| Delayed exits | Provide capital before a traditional sale | Longer-than-expected holding period |
The market also offers a different form of portfolio construction. Instead of committing capital to a new fund and waiting years for investments to mature, secondary buyers can select existing exposures. BlackRock highlights the ability to deploy across managers, strategies, vintages and regions as one of the structural attractions of secondaries.
Yet secondary investing does not eliminate illiquidity. It simply introduces another potential transaction point. A buyer who acquires a private fund interest still owns an illiquid asset and may need to hold it for years.
That distinction matters. Liquidity access is not the same as liquidity itself. The existence of a secondary market does not guarantee that an investor can sell immediately, at NAV or at a favorable price.
The Role of Institutional Investors
Institutional investors are becoming central to this ecosystem because their portfolios are large enough for relatively small allocation changes to require substantial transactions.
Pension funds, endowments, sovereign wealth funds and insurance companies can use secondaries to manage vintage exposure, portfolio concentration and liquidity. Family offices can use the market for similar reasons, often with greater flexibility around timing and investment objectives.
BlackRock‘s 2026 private-markets outlook notes that institutional investors increasingly use secondaries as a core portfolio tool, while LP sales in the first half of 2025 reached $56 billion, up 40% from the same period a year earlier.
This development could deepen the market because more sophisticated sellers create more diverse supply, while dedicated secondary funds provide specialized demand.
Preqin’s 2026 research also points to continued momentum: it says secondaries funds are fundraising faster than primary funds and that the median 2025-vintage secondaries fund reached first close faster than comparable primary funds.
For institutional investors, the strategic significance is clear: secondaries are moving from an opportunistic disposal mechanism toward a recurring component of private-market portfolio management.
The Future of Private-Market Liquidity
The secondaries market could become increasingly important as private companies remain private longer and private-market allocations grow.
Continuation funds are particularly significant because they change the traditional relationship between fund life and asset ownership. Instead of selling a company simply because the fund is approaching maturity, a GP can transfer the asset into a new vehicle and give existing investors a choice between liquidity and continued exposure.
McKinsey estimates that GP-led liquidity solutions more than tripled from $35 billion in 2020 to $115 billion in 2025, while continuation vehicles accounted for about 14% of sponsor-backed exits.
That suggests a broader evolution:
Buy → Hold → Exit
is increasingly becoming:
Buy → Create Value → Provide Liquidity → Continue Ownership → Exit Later
The model does not guarantee better outcomes. Instead, it creates more decision points. Investors can potentially monetize exposure without abandoning an asset’s future growth, while GPs gain additional time to execute a value-creation plan.
The risk is that flexibility can become complexity. More vehicles, more transactions and more valuation events require stronger governance, transparency and underwriting.
Unique Insight: The Growth of Private Markets Is Creating a Parallel Liquidity System
The deeper significance of the secondaries market is that it is becoming a parallel liquidity system for an asset class that was never designed to trade frequently.
Traditional private markets largely followed:
Capital → Long Holding Period → Exit → Distribution
The emerging model allows:
Capital → Ownership → Liquidity Event → Portfolio Rebalancing → Continued Private Exposure
That is more than a change in transaction volume. It changes how ownership itself can work.
An LP no longer necessarily has to choose between holding a fund interest until the underlying investments exit and abandoning the strategy entirely. A GP does not necessarily have to sell a high-conviction company simply because the original fund is reaching maturity.
For investors, this creates an intermediate layer between ownership and exit. As private assets remain private for longer, that layer could become increasingly important infrastructure.
Conclusion
The secondaries market is being fueled by a fundamental mismatch: private assets are lasting longer while investors still need flexibility.
The growth of private equity secondaries, GP-led transactions and continuation funds reflects a broader change in private capital. Investors increasingly want to manage liquidity, concentration and portfolio construction without necessarily abandoning private-market exposure.
Yet secondaries are not a shortcut around investment risk. Pricing depends on underlying asset quality, valuation, transaction structure, manager capability, fees, market conditions and future exit potential. A discount can create an opportunity, but it can also signal uncertainty.
The most important development may therefore be structural. The secondaries market is giving private markets something they historically lacked: more ways for ownership to change hands before the final exit.
If private markets continue to expand while holding periods lengthen, that flexibility could become less of a specialist feature and more of a core part of how private capital is managed.
Frequently Asked Questions
What is the secondaries market?
The secondaries market allows investors to buy and sell existing interests in private funds, private companies and other private assets, creating liquidity without necessarily requiring an immediate sale of the underlying business.
Why is liquidity demand increasing in private markets?
Longer holding periods, slower exits, portfolio rebalancing, capital requirements and delayed distributions can create liquidity needs even when investors remain positive about private assets.
What are private equity secondaries?
Private equity secondaries involve the transfer of existing private-equity fund interests or company exposures from one investor to another rather than a new primary investment.
What is an LP-led secondary?
An LP-led transaction occurs when a limited partner sells an existing fund interest, often to raise liquidity or rebalance its portfolio.
What is a GP-led secondary?
A GP-led transaction is initiated by the fund manager and commonly involves transferring one or more portfolio companies into a new vehicle, such as a continuation fund.
How do continuation funds fit into the secondaries market?
Continuation funds allow GPs to retain selected assets beyond the original fund’s life while giving existing LPs an opportunity to receive liquidity or roll their investment forward.
Why do investors sell private equity interests?
Reasons can include portfolio rebalancing, liquidity requirements, fund maturity, concentration management, changes in investment strategy or the need to free capital for new commitments.
Who buys secondary private equity investments?
Specialist secondary funds, institutional investors, asset managers and other private-capital investors can participate, depending on the transaction.
Are secondary-market discounts always attractive?
No. A discount must be assessed against the quality of the underlying assets, valuation methodology, expected cash flows, fees and future exit prospects.
How do institutional investors use secondaries?
They can use secondaries to manage portfolio liquidity, rebalance private-market allocations, reduce concentration and adjust exposure across managers and investment vintages.
Contributing Editor for Alt Finances, vision-driven with 20+ years in family office, asset management, and corporate development. Holds UN Special Consultative Status and is 100 Women in Finance Board Chair. Tulane University – A.B. Freeman School of Business.
