Liquidity, redesigned: how the growth of private market secondaries is reshaping capital, risk and ownership

The ten-year, closed-ended fund has been a defining feature of the private markets ecosystem since inception, and illiquidity has been one of the fund structure’s key characteristics.

The illiquidity of the closed-ended fund has often been viewed as one of the biggest constraints on private markets, but it is in fact a design feature of alternative assets. For any investor, one of the biggest risks to maximizing value realization from an investment is exiting at the wrong time.

In liquid, public markets the option to trade immediately is always available, and in periods of volatility, when emotion overrides analysis, decision-making can be compromised.

The illiquid private markets model, by contrast, serves as a seatbelt that protects investors against premature exit decisions. Capital is committed for an extended period, providing managers with the space to build value over time before deliberately selecting the best moment to exit and realize value and liquidity.

Despite the illiquid nature of private markets, a secondaries market for alternative assets has existed for decades. The first private secondaries deal can be traced back to the early 1980s, when venture capitalist Dayton Carr acquired the personal venture capital fund stakes of IBM chief executive Thomas Watson Jr, who had to exit his positions when appointed as the US Ambassador to the Soviet Union.

Even though the secondaries market grew gradually following this first trade, for many years the concept of secondaries in private markets never sat easily with GPs and LPs, who saw trading out of a fund before it matured as a sign of either LP distress or buyer’s remorse, or a failed relationship with a GP. There was a negative stigma associated with secondaries, and as a consequence secondaries dealmaking was sporadic, low-key and seen as an emergency liquidity tool, only to be deployed once all other options had been exhausted.

The 2008 financial crisis signaled a turning point in the narrative. Across the board LPs, many of whom had pursued overallocation strategies in the preceding buyout boom, were forced to come to the secondaries market, and as more LPs used the market, so familiarity and acceptance of secondaries increased.

Momentum continued to build through the early 2010s, and during the last decade the industry has undergone a transformative growth surge. Evercore figures show that between 2016 and 2025 secondary market transaction volume has increased more than six-fold between 2016 and 2025, when volume hit US$226 billion. During this period LP-led volume (where LPs exit fund stakes in their portfolios) has climbed from US$26 billion to US$120 billion, while GP-led volume (where a GP orchestrates a secondaries deal to transfer an asset or assets into a new fund) has grown almost ten-fold, from US$11 billion in 2016 to US$226 billion.

Beyond the exit bottleneck

A portion of this growth in transaction volume can be attributed to a significant slowdown in distributions by managers to their LPs through a cycle of climbing interest rates and flat M&A activity.

Distributions to paid-in (DPI) capital as a share of total PE assets under management (AUM) was 6% in the 12-month period ended June 2025, down from the pre-Covid average of 16% from 2015 to 2019. Against this backdrop, investors eager to realize real cash returns have turned to the secondaries market in increasing numbers.

GPs have been utilizing the secondaries market more frequently too, for similar reasons. With the pressure to show DPI building, GPs have utilized continuation vehicle (CV) deals (a type of GP-led deal) to bring forward liquidity without having to navigate unpredictable M&A and IPO markets for an exit. According to GCM Grosvenor CVs represented approximately 15% of total sponsor-backed exit value in 2025, up from 8% in 2021.

But while current market conditions have contributed to rising secondaries deal value, increases in activity are not exclusively a response to a cyclical dip in realizations. Even when conventional exit routes reopen and distributions fall back into balance, secondaries activity is expected to remain on a growth trajectory.

Managers and investors have come to realize that use cases for secondaries extend beyond serving exclusively as a liquidity release valve. Secondaries can support multiple objectives and be used proactively to manage private markets portfolios.

A structural shift

Perhaps the most noticeable application of how secondaries serve as a tool that offers more than just a liquidity backstop is the use of the market to smooth out mismatches between fund-life and optimal holding periods.

According to Bain & Co the average holding period for assets at exit has extended to seven years, with managers holding assets for longer in order to give portfolio companies more time to grow earnings and maximize value on exit.

This disconnect between the traditional private equity portfolio holding period of five years is structural rather than temporary, and secondaries deals have become one of the main ways to bridge the gap.

LP-led deals facilitate the transfer of assets to new investors willing and able to hold fund stakes to the end of their remaining duration.

CVs, meanwhile, provide managers with the scope to extend the hold period of an asset, rather than selling to meet the time constraints of a fund structure and leaving value creation upside on the table for another buyer. For LPs that do require liquidity, however, the option is there to take the liquidity a CV deal provides instead of rolling over and extending a hold period.

CVs have emerged as the GP-led deal structure of choice, accounting for close to 90% of GP-led transaction volume, but other types of GP-led transactions provide further flexibility.

GP-led tender offers (where GPs partner with secondaries investors to offer incumbent LPs an option to sell their fund stakes at a pre-negotiated price), for example, can solve liquidity pressures for LPs that want to cash out, without having to form a new vehicle with new terms, as is the case in a CV. This can help GPs to tidy up investor registers and supply liquidity to those that require it with minimal disruption for LPs that stay invested.

Strip sales, where a fixed percentage of each asset in a portfolio is sold to a secondaries investor, also unlock liquidity without pulling assets out their current fund, and can help GPs to manage concentration risk when one or two assets have grown too large and represent an outsized part of a portfolio.

Preferred equity secondaries, meanwhile, see secondaries investors provide immediate, non-dilutive capital that can be used to fund a distribution to investors or a portfolio company growth initiative. The secondaries investor will then receive up to 100% of all future cash distributions until the principal and their preferred return hurdle are cleared.

The optionality in the GP-led secondaries market has been further complemented by other sources of capital that are now available to GPs to unlock liquidity. NAV finance expedites liquidity by providing loans against fund portfolios, while collateralized fund obligations (CFOs) bundle together diversified fund stakes that are then sold off in tranches, each with distinctive duration and risk profiles, to investors according to their respective risk appetites. Rated feeder funds, meanwhile, open up liquidity flows from regulated investors that seek private markets exposure but are not able to make conventional equity deployments into primary funds.

Programmatic plays provide greater control

The expansion in the number and variety of structures that can generate liquidity in private markets is allowing investors to be more precise in how they construct portfolios and manage investment duration and risk. Exposure is no longer limited to blind-pool funds that will only mature in ten years at the earliest.

More LPs recognize this and are becoming programmatic sellers (who proactively trade stakes in the secondaries market on a regular basis), rather than passive investors who wait for portfolios to mature and only dip into the secondaries market reactively when they have to troubleshoot.

Strategic liquidity can be one motivation for programmatic selling, as observed across various university endowments, who have stepped up to support the cash flow requirements of their organizations, which are navigating tax increases and government funding cuts, by trading in the secondaries market.

LPs, however, will also sell programmatically to intentionally tweak geographic or sector exposure, offload ageing assets where IRRs are already baked in, trim manager relationships, or free up capital to make allocations to new funds that favored managers are bringing to market.

Accessing asset class entry points

Secondaries, and the other emerging liquidity mechanisms referenced above, also enable investors to orchestrate entry points into asset classes that primary programs alone can’t offer.

Private infrastructure secondaries deal volume, for example, climbed by a third in the first half of 2026 to US$12 billion, according to Evercore, as investors utilized secondaries to buy into and exit exposures to infrastructure projects, where project development timelines can extend over decades, at different points along the development cycle, without having to wait for an M&A deal or an IPO to do so. Equally, incumbent investors can lock in value and exit by using secondaries rather than waiting for a transactional event that could be years away.

The private credit secondaries market, meanwhile, is also expanding rapidly, with H1 2026 deal value of US$20 billion already matching the full-year total for 2025. Investors and GPs have leveraged GP-led private credit secondaries to retain exposure to high-quality credits that are refinanced outside of the typical eight-year primary private credit fund lifecycle, or build up portfolios of mature loans where there is greater visibility of credit quality, rather than investing in a blind-pool credit fund at inception.

Risks remain

Using secondaries to unlock liquidity does not come without commercial and relationship risk. Every liquidity structure changes the distribution of risks.

In an LP-led deal remaining performance risk and unfunded commitments are transferred from one party to another. They don’t disappear. In a CV deal, meanwhile, the GP leading a deal is unavoidably conflicted given its position as both buyer and seller. The formation of a new ownership structure, a new set of economic terms and a new valuation point, has to strike a fine balance between providing a fair deal for LPs that choose to take liquidity while preserving some upside for rolling LPs and incoming secondaries investors. Failure to get this balance right can hurt long-term investor relationships or compromise the long-term value potential of the assets in the CV.

NAV financing and preferred equity, meanwhile, place claims on future portfolio cash flows and change the order in which future proceeds are distributed, with potential implications for alignment of interest.

For the CFO of a private markets manager or investor, the decision to utilize the secondaries market has implications that extend beyond liquidity alone, and has material second order effects on investor confidence, fund economics, portfolio realization strategy and capital structure.

Beyond liquidity: secondaries shape strategy

As secondaries transactions are applied in different contexts, therefore, their impact on the wider private markets ecosystem will extend beyond simply filling liquidity gaps.

Asset ownership, investment timelines and liquidity events can be managed with greater flexibility thanks to secondaries. Investment duration and liquidity events can now be engineered, and the tools are available to accommodate divergences between investor and manager timelines and liquidity objectives when they emerge.

This represents a natural step for the private markets industry as it matures, bringing it into line with mainstream public equity and public debt markets where a secondary market is a given.

For an emerging secondaries market to function effectively, however, pricing transparency and good governance are non-negotiables, and delivering those essentials requires an operational model that can meet all the associated data, valuation, reporting and accounting obligations that come with that.

This operational ask deserves separate treatment, but for now, the strategic conclusion that liquidity is no longer confined to the end of an investment process is enough to focus on.

Secondaries used to be a smoke signal that the original plan had come under pressure, or a last resort when the expected route to realization was no longer available. Now, the option to transfer, extend, finance or restructure private markets fund exposures and portfolios will be included in investment plans from the outset.