Secondary Market Investing: 10 Themes for 2023

The Secondary Market Evolution

If you look at the secondary market today compared to a little over a decade ago in 2010, there was about $10 billion in secondary volume. We were coming out of the Global Financial Crisis, and people were using the secondary market when they were distressed. It was a small industry and there was barely any press around secondaries.

At the same time, we saw a tendency for pension plans and other organizations to massively overallocate to private equity. They had very thin bands of targets for their private equity allocations, which created a wave of secondary selling in 2011 and 2012. And if you recall, the government was also doing stress tests at banks during those years. The conclusion was that banks could no longer own commitments to private equity firms. That had a name: the Volcker Rule. Banks had to sell their commitments, which created more volume. More LPs (limited partners) saw that occurring and realized they, too, could use the secondary market to their benefit.

Fast forward to today, it is a much different environment. The secondary market has grown into an exciting area with over $100 billion in volume, demonstrating the maturation of the asset class over the last two decades.

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