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The Strategic Role of Secondaries in Private Market Portfolios
Secondaries offer efficient, diversified access to private equity — with a potentially shorter J-curve, discounted entry and strong risk-adjusted returns.
- Portfolio Construction
- Alternative Insights
- Private equity
Key Points
What this is
Secondaries let clients invest in existing private equity funds for potentially faster cash flow and diversification.
Why it matters
They may offer discounted entry, reduced risk and help advisors optimize portfolios in changing markets.
Where it's going
Success in secondaries depends on skilled managers — deep relationships and expertise are crucial in this complex market.
Private equity has traditionally been the domain of long-term investors willing to commit capital for a decade or more. Today, a fast-growing segment of this market — — is reshaping how investors can access private investment opportunities.
For wealth advisors, secondaries represent an increasingly relevant mechanism for helping clients access private markets in a more efficient and diversified manner. They offer exposure to established companies, potential discounts on entry, and a faster path to cash flow than traditional primary commitments.
The Evolution of The Secondary Market
The secondary market has evolved from a small niche into a central component of the private equity ecosystem. Annual transaction volume exceeded $160 billion in 2024 and is on track to surpass $200 billion in 2025, reflecting both the growing demand for liquidity among original investors and the appeal of the strategy’s risk-adjusted return potential.
The private equity secondary market is the selling and buying of limited partner’s holdings in private equity funds after the initial investment is made.
This expansion has coincided with a shift in the role secondaries play in portfolio management. Once viewed primarily as an outlet for distressed sellers, the market has matured into an efficient tool for portfolio optimization. Institutions, family offices, and fund managers now use secondary transactions to manage exposure and recycle capital across vintage years in a slower exit environment.
The Current Environment: Opportunity Through Scarcity
Despite this record activity, the secondary market remains structurally undercapitalized. As of mid-2025, global secondary “dry powder” — committed but uninvested capital — stood at approximately $170 billion, roughly equal to one year of deal flow. In other words, available capital has not kept pace with the uptick in potential sellers, a trend driven by slower distributions from primary private equity funds.
This shortfall represents an advantage for astute buyers. With more sellers than buyers in the market, well-capitalized secondary managers can exercise greater selectivity, prioritizing portfolios backed by top-tier sponsors and proven assets, often at more favorable entry points.
Periods of market dislocation and tighter liquidity have historically created attractive entry points for secondary investors. Many large private equity allocators are contending with the “denominator effect,” where the value of their private holdings has increased as a share of total assets. To restore target allocations and generate liquidity for new investments, many of these investors are turning to the secondary market.
Yet while supply has expanded, the pool of active, well-capitalized buyers remains small. Only a select group of managers possess the relationships, data access and analytical capabilities required to evaluate complex transactions. This imbalance has improved deal quality, with high-caliber assets coming to market while weaker portfolios often fail to trade.
The Investor Value Proposition
For investors, secondaries combine many of the advantages of private equity with a potentially more predictable return profile. Key features include:
- Shorter J-Curve: In private equity, the J-Curve illustrates how early negative returns — due to fees and initial investments — are followed by strong positive gains as portfolio companies mature and exit, forming a curve like the letter “J.” Because secondaries involve existing portfolios, capital is deployed into operating companies with established cash flows, reducing the early period of negative returns that often characterizes new private equity funds.
- Discounted entry pricing: Secondary interests typically trade below their last reported valuation — often by 10–20% — providing a margin of safety and an opportunity for enhanced long-term returns.
- Attractive risk-adjusted performance: By combining discounted pricing with exposure to proven assets, secondaries can offer strong relative performance across varying market conditions.
- Diversification: A single secondary allocation can encompass multiple funds, sectors, geographies, and , helping smooth portfolio outcomes over time.
It is essential to recognize, however, that secondaries remain illiquid, long-term investments. Investors are providing liquidity to others, not gaining it themselves, and should maintain an appropriate time horizon consistent with broader private market allocations. Other important risks and considerations of investing in secondaries include structural complexity, the importance of manager selection, and the need for valuation and pricing expertise.
Conclusion: Expanding Access to Private Markets
As private markets continue to mature, secondaries are assuming a strategic role in how investors gain exposure to private equity. By offering access to seasoned portfolios, discounted entry pricing, and diversified cash-flow profiles, secondaries can provide a compelling substitute or complement to primary fund commitments.
The opportunity, however, remains highly specialized. Most transactions require sponsor approval, and effective underwriting depends on access to proprietary data and long-standing GP relationships. While participation has broadened to include family offices, wealth platforms, and other retail-accessible vehicles, successful execution still relies on institutional-grade capabilities.
For advisors, this highlights the importance of partnering with experienced managers that have deep relationships across the private equity ecosystem, rigorous due diligence processes, and the discipline to deploy capital selectively in a competitive market. In the current environment — defined by limited , an expanding pipeline of high-quality assets, and a favorable supply-demand balance — such expertise can help investors participate confidently in one of the most dynamic and rapidly growing segments of private markets.
The amount of unspent capital investors have that's waiting to be invested, usually into private investments.
The year a private fund invests in a company or companies.
Main Point
Secondaries: A Strategic Portfolio Tool
Private equity secondaries offer wealth advisors faster cash flow, discounted entry, and diversification — making them a vital tool for optimizing client portfolios in today’s market.
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