Practice chapter · in depth
By Niko Hatziiosifidis · last reviewed 23 Aug 2026
Secondaries are the second-hand market for private markets funds: an investor sells an existing fund interest — including any commitments still outstanding — to a buyer, usually at a discount to the last reported net asset value (NAV). What was a niche has become a market with an annual volume of US$240 billion (2025), driven by the distribution drought of the years 2023–2025 (Jefferies). For buyers, secondaries mean more mature portfolios, a dampened J-curve, broader diversification — but no guarantee that the discount is a bargain.
The secondary market prices quality finely: LP portfolios traded at an average of 87% of NAV — buyout trades much closer to NAV than venture or real estate.
Average price as % of NAV (LP-led) · Jefferies Global Secondary Market Review, FY 2025
A private equity fund is normally a one-way street: you sign a commitment, the fund calls the capital over a period of years, and money only flows back once holdings are sold. You cannot give notice. The secondaries market is the emergency exit from that one-way street — and by now much more than that: a secondary market in its own right, highly professional, for existing fund interests.
The basic mechanics: a limited partner (LP) — a pension fund, say — sells its interest in a live fund to a buyer, typically a specialist secondaries fund. The buyer pays a negotiated price, takes over the interest and steps into all its rights and obligations — including the commitments not yet called (Wikipedia: Private-equity secondary market). The fund’s general partner (GP) has to consent to the transfer as a rule; it checks whether the new investor is solvent and free of regulatory complications. So you are buying neither a company nor a new fund, but a second-hand position: an already invested, visible portfolio with a valuation history — plus the obligation to meet future capital calls.
That visibility is precisely the economic core. Subscribe to a new fund and you are buying a blind pool — a promise. Buy a secondary position and you can see which companies are in the portfolio, how they are valued and how far through its life cycle the fund is. Why evergreen funds make such intensive use of that property (faster deployment, a dampened J-curve) is set out on our private equity page — here the subject is the market itself.
The most important question for any buyer is: why would someone give up an interest at a discount? The answer is almost never “because the portfolio is bad” — it is almost always: because the seller needs liquidity or balance-sheet management.
Three motives dominate. First, the denominator effect: when share prices fall, the denominator of the overall portfolio shrinks while private equity valuations follow only sluggishly — a pension fund’s PE allocation rises above its limit without the fund having done a thing. 2022 supplied the textbook case: on paper, private equity beat the equity market by around 36 per centage points, many institutions were suddenly overweight and had to sell (CFA Institute, Torys). Second, a need for liquidity: anyone who has to make ongoing pension payments or finance new commitments while distributions from older funds fail to arrive sells holdings. Third, portfolio clean-up: large institutions part with residual positions, lapsed GP relationships or entire strands of strategy — administration costs money, even for small positions. Jefferies sums up seller behaviour in 2025 like this: LPs sold diversified portfolios “to accelerate liquidity and manage over-allocations in a low-distribution environment” (Jefferies).
The seller is therefore swapping future, uncertain distributions for immediate, certain money — and pays for it with the discount. That is not panic, it is a price for liquidity.
The beginnings were tiny: in 1982 Dayton Carr founded the Venture Capital Fund of America (VCFA), the first vehicle set up specifically to buy second-hand fund interests. As late as 1992, Landmark Partners' purchase of a US$157 million portfolio from Westinghouse Credit counted as a major event; only in 1997 did annual volume pass US$1 billion for the first time (Wikipedia).
Today the market plays in a different league: US$240 billion changed hands in 2025 — up 48% on the US$162 billion of 2024 and the third record year in a row (Jefferies). Of that, US$125 billion went to classic LP sales and US$115 billion to GP-led transactions (+53%).
The growth driver of the years 2023–2025 has a name: the distribution drought. Because exits — flotations, trade sales — ran weak, distributions from buyout funds fell to around 11% of NAV per year according to Bain, a record low against an average of 29% in the years 2014–2017; some 29,000 unsold portfolio companies worth US$3.6 trillion piled up on the books (Bain Global Private Equity Report 2025). When the normal flow back dries up, the secondary market becomes the most important source of liquidity — for LPs as for GPs. On the buy side, more capital stood ready in 2025 than ever before: US$327 billion of dedicated secondaries capital, plus evergreen funds with inflows of around US$113 billion, of which some 41% went into secondaries (Jefferies).
Secondaries are not traded “at a quoted price” — there is no exchange. The reference point is the NAV last reported by the GP, and the price is expressed as a per centage of it. In 2025 buyers paid an average of 87% of NAV for LP portfolios; buyout funds achieved 92%, private credit 91%, venture/growth 78%, property 70% (Jefferies).
Why the discount? Four reasons work together. First, valuation scepticism: NAVs are the GP’s estimates, not market prices — buyers price in the risk that the book values are too optimistic (particularly in venture, where the discounts are largest). Second, capital lock-up: the buyer puts money down today for distributions that are years away — and demands compensation in return. Third, the fee burden: the interest carries the target fund’s future management fees and carry. Fourth, bargaining power: the seller needs liquidity, the buyer does not.
Important when reading market data: the “average price” is a mosaic. Large, diversified buyout portfolios from good GPs attract top bids at or above the average, residual positions and niche funds considerably less. And prices breathe with the cycle: in the stress year 2022 the average was only 81% (venture: 68%), while buyout recovered from 91% (2023) via 94% (2024) to 92% (2025) (Jefferies). A discount is therefore not a fixed rebate but a market price for uncertainty and liquidity.
LP-led is the classic case: an investor sells its interests, the fund itself is untouched. GP-led means the fund manager itself initiates the transaction — and at US$115 billion accounted for almost half the market in 2025 (Jefferies).
The most important GP-led format is the Continuation Fund (CV): the GP sells one or more portfolio companies out of an old fund into a new vehicle it manages itself, financed by secondaries investors. Existing LPs can either take the cash or roll over. Single-asset CVs — where a single “crown jewel” is passed on — accounted for more than 50% of CV volume for the first time in 2025; 29 GP-led deals crossed the billion mark. Alongside these there are tender offers (the GP organises a purchase offer to all LPs, the fund continues to exist) and strip sales (a cross-section of several holdings is sold pro rata).
The conflict of interest in CVs is obvious: the GP sits on both sides of the table — selling, as manager of the old fund, to itself as manager of the new one, and continuing to earn fees and carry thereafter. In May 2023 the ILPA published guidance on this, “Continuation Funds: Considerations for Limited Partners and General Partners”: LPs should be given at least 30 calendar days (or 20 business days) to decide, should receive a genuine status quo option to roll over on unchanged terms, and the GP’s carry should not be crystallised but rolled into the new vehicle (ILPA, Goodwin). You will find the checklist for it in the professional deep dive.
Three effects shape the profile. First, the dampening of the J-curve: buy mature positions and you skip the loss-making early years — after five years, secondaries funds have historically paid back more than twice as much capital as buyout or venture funds of the same age (Preqin data, via Capital Dynamics/CAIA). Second, diversification: a secondaries portfolio bundles hundreds of companies across many funds, vintages and sectors — that cuts blind-pool risk drastically, but it does not take risk to zero: valuations can still fall. Third, buying below book value: buy for 90 cents what stands at 1 dollar on the books and you start with a built-in buffer.
Loss rates have been remarkably low historically: only 1.4% of secondaries funds of the 1993–2011 vintages ended below 1.0x TVPI — against 22.8% of direct PE funds (Preqin, via Capital Dynamics). The flip side: secondaries also cap the outliers on the upside — you are buying the average, in mature form, not the next high-flyer. And the discount itself is not a gift but compensation: if the true value falls below the purchase price, the “rebate” was too small. How buying below NAV works in accounting terms inside evergreen funds — the day-1 uplift — is set out below.
Pricing mechanics in detail. Every secondaries deal has a record date (also reference date): the valuation date whose NAV serves as the pricing basis. Months often pass between the record date and closing — capital calls and distributions in the interim are set off against the purchase price, so that economically the buyer holds the economic interest from the valuation date onwards. In practice that means: a price of “92% of NAV” refers to a NAV that is already out of date by closing — if the portfolio runs well the effective discount is larger, if it runs badly, smaller. Two instruments lift headline prices further: deferred payments — the buyer pays part of the price only after 6–24 months, used in around 23% of LP deals and 29% of GP-led deals in 2025 (Jefferies) — and leverage at fund level: many secondaries funds part-finance portfolio purchases with borrowing, which gears equity returns but can create selling pressure in stressed phases. A price that looks high can therefore be partly financing technique.
GP-led governance checklist per ILPA (May 2023) (ILPA, Goodwin): (1) A clear rationale for why the CV is better than a sale in the market. (2) Early LPAC involvement, including scrutiny of how the adviser is selected and paid; final terms for review at least 10 business days before signing. (3) A competitive price discovery process; a fairness opinion can make sense. (4) At least 30 calendar days / 20 business days for LPs to decide — where the time is not sufficient, cash-out applies as the default. (5) A status quo option: rolling over on the existing terms — no higher fee basis, no higher carry, no lower hurdle. (6) No crystallisation of carry for rolling LPs; carry from cash-outs should be rolled into the CV. (7) Information parity between existing LPs, the LPAC and new investors.
The day-1 uplift and the performance fee question. If an evergreen fund buys a position for 90% of NAV, it may then value it at the target fund’s full NAV — the transaction price of a single LP sale does not “reset” the fund’s fair value, as Hamilton Lane describes in “Understanding Secondary Valuations in Evergreen Funds” (Hamilton Lane). The result: an immediate book gain without any operational increase in value. During an evergreen fund’s build-up phase, when it is buying continuously, such uplifts can lift the reported return noticeably — they are a genuinely captured purchasing advantage, but not repeatable once inflows fall relative to the existing portfolio. It becomes touchy on fees: if the fund charges a performance fee on the increase in NAV, the manager shares in the uplift — in a gain that comes purely from the purchase. So check: how does the fund value the secondaries it buys (immediate uplift, or a write-up over time)? And does a performance fee already accrue on unrealised uplifts?
Secondaries are purchases and sales of existing interests in private markets funds. The seller receives liquidity immediately, the buyer takes on the interest together with its outstanding commitments — usually at a discount to the last reported NAV.
Because the NAV is the manager’s estimate, the buyer ties up capital for a long time, future fees sit on the interest and the seller needs liquidity. In 2025 the average was 87% of NAV, buyout 92%, venture 78% (Jefferies).
A new vehicle set up by the existing fund manager that takes over one or more companies from an old fund. Existing investors choose between cashing out and rolling over. Because the GP sits on both sides, the ILPA guidance of 2023 counts as the governance benchmark.
In 2025 global volume reached a record US$240 billion according to Jefferies — 48% more than in 2024. Around half of it went to GP-led transactions.
Historically only 1.4% of secondaries funds ended below 1.0x TVPI, against 22.8% of direct PE funds (Preqin data, 1993–2011 vintages). The reasons: diversification, mature portfolios, buying below book value. But less risk also means less chance of an outlier on the upside — and losses remain possible.
LP-led: an investor sells its fund interests, the fund remains unchanged. GP-led: the manager itself structures the transaction — a Continuation Fund or a tender offer, say — and has a built-in conflict of interest in doing so.
Last reviewed: 23 Aug 2026 · Methodology · Not investment advice.