Resources: Insights

Secondaries: Navigating Illiquidity and Discounted Access in Private Markets

Investing

In a private market environment defined by slower exit activity and limited liquidity, secondaries have emerged as a potentially compelling and strategic entry point for qualified investors. This strategy (focused on acquiring existing fund interests) can offer attractive pricing, enhanced transparency, and the potential for a faster return of capital compared to traditional primary commitments. 

At IEQ Capital, we often view secondaries as a core private equity complement and a potentially practical solution to the illiquidity and blind pool risk commonly associated with private market investing. 

 “Our clients value the ability to access private markets at a known discount and with clear line of sight into underlying assets,” says Eric Harrison, Founder and Managing Partner at IEQ Capital. “Secondaries may provide the liquidity and risk management our investors need today.” 

 Why Investors Are Turning to Secondaries 

  • Favorable Supply-Demand Dynamics: At year-end 2024, the secondaries market featured $173 billion in dry powder versus $152 billion in annual deal flow. This capital surplus has helped support pricing discipline and active deployment. 1  
  • Slower Exit Activity: With M&A and IPO volumes 40% – 80% below 2021 levels, both general partners (GPs) and limited partners (LPs) have leaned on secondaries for liquidity and rebalancing needs. 2 
  • A More Institutional Seller Base: Nearly 40% of LP sellers in 2024 were first-time participants, highlighting the increasing normalization of secondaries as a proactive portfolio management tool. 3 
  • Discounted Access to High-Quality Assets:  Transactions have typically closed at approximately 89% of net asset value, allowing investors to purchase seasoned portfolios at meaningful discounts and with reduced J-curve exposure. 4 

 Key Features of Secondary Investing 

  • Portfolio Diversification: Secondary interests often provide exposure across vintage years, sectors, geographies, and managers, helping reduce idiosyncratic risks. 
  • Discounted Entry Points: Acquiring interests below net asset value may enhance upside potential while potentially mitigating downside. 
  • J-Curve Mitigation: By investing in funds already past their deployment phase, investors may benefit from shorter holding periods and earlier distributions. 
  • Reduced Blind Pool Risk: Greater visibility into underlying assets can enable more informed investment decisions and can reduce exposure to unknowns present in primary fund commitments. 

“We believe the secondaries market today represents a compelling opportunity in private markets. Solid deal flow, attractive pricing, and expanding seller participation can create a fertile environment for acquiring high-quality assets at discounted prices.” –Tim Altman, Senior Director at IEQ Capital

Risks to Consider: While secondaries present attractive features, investors must remain mindful of key risks including market volatility: pricing dynamics can shift in response to broader capital market conditions, execution risk: thorough diligence is required to evaluate underlying asset quality and fund performance, liquidity constraints: exit timing may be uncertain and is typically tied to fund life cycles, and valuation variability: lagged net asset values may not reflect real-time market conditions. Successful implementation of secondaries strategies relies on rigorous manager selection, pricing discipline, and granular asset-level underwriting. 

Why It Matters for UHNW Families 

For UHNW investors, secondaries may potentially offer several distinct advantages: 

  • More timely access to private equity: Compared with primary commitments, secondaries can provide faster exposure to deployed capital and earlier distributions. 
  • A complement to existing private market exposures: Acquiring interests across vintages, sectors, and managers can enhance portfolio diversification. 
  • Improved liquidity and capital return within a multi-asset portfolio: Discounted entry points and reduced J-curve effects can support cash flow visibility and shorten duration. 

When integrated thoughtfully, secondaries may be able to strengthen private markets allocations and improve liquidity planning. 

The IEQ Perspective

We believe secondaries represent a timely opportunity for long-term investors to gain exposure to private markets through a more liquid and data-rich entry point. This strategy may offer discounted access to seasoned portfolios, shorter hold durations, and improved diversification, helping to manage risk while positioning for future upside. 

We invite you to connect with our team to explore how secondaries may fit within your family’s private market strategy. 

Sources

  1. Preqin, January 2025
  2. Lazard, January 2025
  3. Jefferies, January 2025
  4. Commonfund, March 2025

Secondaries

Macro Risk: Macro factors including interest rates, inflation, or economic growth may lead to materially different return outcomes for the sector, particularly if there is a material impact to earnings outlooks

Mark to Market Risk: Portfolios may contain liquid securities which are typically more volatile than private investments.

Concentration Risk: Strategies pursuing GP-led deals may have more concentration risk than a traditional secondaries fund.

Liquidity Risk: Exit strategies are typically contingent on capital markets and prevailing appetite for risk, which may ebb and flow with the cycle.

This material is as of the date indicated, not complete, and subject to change. Additional information is available upon request. No representation is made with respect to the accuracy, completeness, or timeliness of information, and IEQ assumes no obligation to update or revise such information. The information set forth herein has been developed internally and/or obtained or derived from sources believed by IEQ Capital, LLC (“IEQ Capital”) to be reliable. However, IEQ Capital does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does IEQ Capital recommend that the attached information serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. It is not intended to be, nor should it be construed or used as investment, tax, accounting, legal or financial advice. IEQ provides no assurance or guarantee that any investment will be successful or that any returns will be achieved. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.