Secondaries Primer
Secondaries are typically purchases of existing investors’ interests in private funds (e.g., buyout, venture, credit, infrastructure) or transactions led by fund managers themselves to provide liquidity to earlier investors. Generally speaking, there are two primary segments:
LP-Led Secondaries: In these situations, an existing limited partner (LP) typically sells its fund interests to another investor in either a directly negotiated or broker-intermediated transaction. Typically, buyers purchase a diversified pool of partnership interests, comprising multiple underlying companies, generally at a discount or modest premium to the reported net asset value (NAV) as of a reference date. LP-led volume reached $56 billion in 1H25, or 54% of the market.1
GP-Led Secondaries: Here, the general partner (GP) creates a continuation vehicle to hold one or more assets in its existing fund longer, which is capitalized by new investors while offering existing LPs liquidity. The assets in the continuation fund are usually priced at fair value. This segment accounted for $47 billion in 1H25, with continuation vehicles representing 87% of GP-led activity.2
Together, they comprise a market with transaction volume on pace to exceed $210 billion in 2025, its largest year ever, and which has grown at a 13% compounded growth rate over the last 10 years.3
Key Attributes of Secondaries
One of the primary attributes and motivations for LPs to consider secondaries is the potential to reduce the J-curve (pattern of early negative returns on private funds) and potentially generate liquidity earlier in the life of an investment (as compared to primary fund investments). Secondary transactions typically involve seasoned fund interests—funds in their mid-life that are already partially invested and may be distributing capital. The underlying companies are usually further along in their journey. As a result, potential distributions may begin within the first few years, rather than in years 5–7 in traditional private equity. Secondary funds historically reach break-even cash flows in ~8 years, compared with 9+ years for primary funds4, thus flattening the J-curve and allowing portfolios to become self-funding sooner. *Distributions are not guaranteed.
Additionally, secondary strategies may offer immediate diversification, typically acquiring several underlying companies across vintages, sectors, and geographies. Often, secondary sales led by LPs bring together broad portfolios of buyout, venture capital/growth equity, credit, and infrastructure funds; that said, secondary activity is skewed toward buyouts, which accounted for ~53% of volume to date in 2025.5
In addition to J-curve mitigation and diversification, other potential benefits may include lower “blind-pool” risk (secondaries generally buy into known portfolios and can evaluate asset-level performance, valuation marks, and exit prospects upfront) as well as a growing, scaled market (dedicated capital reached $302 billion as of mid-2025,6 largely driven by large institutions and evergreen vehicles). This depth may improve price discovery, liquidity, and transaction efficiency—benefits that did not exist a decade ago.
Key Trade-Offs
Because secondaries typically buy companies after much of the early value creation has occurred, they often offer lower maximum upside than primary funds. Assets are generally more mature and a significant portion of growth may already be captured.
Additionally, secondary managers buy what is available, not necessarily what an investor ideally wants. Investors seeking precise vintage or sector construction often find secondaries less customizable than primaries. Secondary portfolios are built from the supply coming to market, so exposure may skew toward certain vintages (e.g., 2018-21, which dominates volume).7,8 And hard-to-access GPs may rarely appear in secondaries.
Finally, secondary returns are highly sensitive to the price paid relative to NAV. Buying at a discount can potentially create an embedded return, but competition from more dedicated capital raised pushes pricing up. High pricing reduces expected returns and increases reliance on continued asset performance. In hot markets, the biggest risk is overpaying. Callan has observed that the rise of retail evergreen funds has increased demand, making the market more efficient and reducing easy opportunities.
Conclusion
Secondaries may offer a compelling entry point into private markets because they potentially combine reduced J-curve effects, broad diversification, lower blind-pool risk, and earlier liquidity with the ability to access assets at potentially attractive valuations. For investors establishing or expanding private investment programs, a strategic allocation to secondaries may serve as a foundational building block, potentially providing a faster path to a fully constructed private equity portfolio.
