What’s Driving the Secondary Market?

What has been happening in the secondary market over the last couple of years?

Let’s set the stage with one of the biggest themes in the secondary market: Growth. Growth and the opportunity set, volume growth in the turnover rate, and growth in the way LPs and GPs are using the secondary market.

Market Opportunity Set

Driving Secondary Market Volume

On this slide we show secondary market volume over the past 15 years. You can see the growth. It certainly hasn’t been in a straight line upwards each year, but over the past 15 years it has grown at a 15 to 20% compound annual rate. Last year was a record year for volume, and despite weaker macro conditions and lower secondary pricing this year, the volume in the first half was still higher than last year’s record.

Notice that beginning in 2015, we show volume separated between LP deals and GP-led deals. The secondary market is now generally characterized by these two types of deals. LP deals are the traditional secondary deal, where a buyer becomes a replacement LP. On the other hand, a GP-led secondary is a transaction initiated by a GP that impacts all LPs in the fund. The most common form is a continuation fund in which secondary buyers purchase one or more assets from an existing fund. As for why you should care, it is because the market has exploded.

GP-led secondaries in 2021 were larger than the entire secondary market just four years ago. So, what’s driving the growth of the overall market? We’ll explore three themes.

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