How do secondary private equity markets work?

The short answer

Private equity commitments are illiquid by design — capital is locked for 7-10 years. The secondary market emerged decades ago to let LPs exit early by selling their fund stakes to other investors, typically at a discount to net asset value.

What changed in the 2020s is the rise of GP-led secondaries. Instead of an LP selling its stake, the GP itself organizes a transaction: the GP creates a new "continuation fund" that buys specific assets from the existing fund, allowing exiting LPs to cash out while new LPs buy in to hold the assets longer. By 2024, continuation funds were 84% of GP-led volume.

The mechanic creates novel governance and information asymmetry questions. The same GP advises both the seller (existing fund) and the buyer (continuation fund) on the same asset.

→ New to private markets? Investment vehicles and real returns

What the data shows

Secondary market data are tracked by Greenhill, Lazard, Jefferies, Setter Capital, and Preqin, with broad alignment on aggregate volume estimates.

Key figures (Preqin / Lazard / McKinsey, 2020-2024):

• Global secondaries volume: $162 billion in 2024, up 45% from $114 billion in 2023
• Continuation funds share of GP-led: 84% of GP-led secondaries in 2024 — up from minimal share pre-2020
• GP-led continuation vehicle deployment: $75 billion in 2024, +84% YoY according to McKinsey
• Typical pricing on LP-led secondaries: 80-95% of NAV in normal markets, dropping to 70-85% during stress periods
• 2025 distributions/AUM: ~6% in H1, vs ten-year average of 14% — the liquidity squeeze that drove secondary growth
• Average PE fund hold period: 6.7 years in 2024 vs 5.7 historically — explaining LP demand for early exit

The exception that nuances: secondary pricing data come primarily from intermediaries who profit from transaction volume. Aggregate "market price" estimates can be biased toward more liquid, larger transactions; the long tail of small or distressed sales typically clears at materially wider discounts than reported averages.

→ Dataset: Financial conditions index

Why it happens — the macro mechanism

Three forces drove secondary market expansion since 2020.

LP liquidity needs. Pension funds, endowments, and family offices that allocated to private equity in the 2010s have begun receiving fewer distributions than expected — DPI (cash returned to investors) hit historical lows in 2024-2025. When operational cash needs arise (pension payments, spending policies, rebalancing), LPs need a way out before fund liquidation.

GP need to crystallize success. The angle that distinguishes continuation funds from prior secondary structures: the same GP who knows the asset best is now both seller and buyer. Continuation vehicles let GPs hold trophy assets longer (typically 4-7 more years) while showing realized returns to existing fund LPs. The GP earns a fresh round of management fees and carry on the continuation fund. Existing LPs face a stark choice: cash out at a price the GP recommends, or roll into the continuation fund on terms also set largely by the GP.

The ILPA (Institutional Limited Partners Association) has flagged the conflict-of-interest concerns: the GP advises the seller (existing fund) and the buyer (continuation fund) simultaneously on the same asset. Independent valuations are now standard practice, but the structure remains intrinsically asymmetric.

Capital deepening on the buy side. Dedicated secondary funds — Ardian, Goldman Petershill, Lexington, Coller, Strategic Partners — manage hundreds of billions specifically to buy LP stakes and continuation fund interests. This buyer depth has compressed discounts and made secondary access routine, not exceptional. Private markets growth in general fueled this dedicated capital pool.

Synthesis by regime: in the LP-led traditional regime (1990s-2010s), secondaries were largely a distressed seller’s market — pricing reflected genuine liquidity need. In the GP-led continuation era (2022 onward), secondaries became a strategic asset management tool — pricing reflects what the GP and incoming buyers negotiate, with information asymmetry baked in. The transition parameter is the share of secondary volume that is GP-led — when it exceeded LP-led volume around 2022, the market’s character shifted fundamentally.

The continuation fund did not solve the liquidity problem of private equity — it transformed liquidity into a strategic decision the GP makes on behalf of LPs.

→ Framework: Asset allocation across regimes

What it means for different economic actors

Existing LPs facing a continuation fund decision. The choice between cashing out and rolling over is rarely neutral. Cashing out crystallizes a return at a price set in part by the GP; rolling over commits to additional fees and carry on assets the LP already owns. The decision typically depends on the LP’s confidence in the GP’s continued operational thesis.

New LPs buying into continuation funds. Buyers gain access to mature, often de-risked assets with shorter expected hold periods than greenfield primaries. The trade-off is information asymmetry: the GP knows more about the asset’s state than the new LP, and the price is partly negotiated by the GP.

Regulators and ILPA-aligned investors. Conflict-of-interest standards, fairness opinions, and LP advisory committee approvals are all evolving rapidly to address GP-led secondaries. The sophistication of governance has lagged the speed of market growth.

A common error is to treat secondary fund returns as a separate asset class with distinctive risk-return characteristics. The data show secondary returns are largely a function of timing the underlying primary fund cycle — strong vintages produce strong secondary returns, weak vintages produce weak secondary returns, with discount mechanics adding modest alpha at the margin.

Practical observation

Go deeper

Related questions

• How does private equity compensate for illiquidity?
• What is the J-curve in private equity returns?
• Why have private markets grown faster than public?
• What is direct lending and why is it growing?

Frequently asked questions

Is the discount on secondary transactions reliable as an alpha source?

Discounts to NAV used to average 15-25% in the 2010s, providing a structural return tailwind for secondary buyers. As dedicated secondary capital has grown, those discounts have compressed — recent data show LP-led secondaries often trading within 5-10% of NAV in normal markets. The historical "discount alpha" is materially smaller today than market commentary often implies.

How do continuation funds differ from traditional GP-led restructurings?

Continuation funds isolate a specific asset or small group of assets in a new vehicle. Traditional GP-led restructurings reorganized entire end-of-life funds. The continuation fund structure allows GPs to hold trophy assets selectively while letting weaker assets liquidate normally — a level of granularity not previously available. This selectivity is what makes the structure attractive to GPs and contentious for LPs concerned about adverse selection.

What governance protections exist for LPs in continuation funds?

Standard practice now includes independent fairness opinions, LP advisory committee approval, and side-by-side option to cash out or roll over at the same price. ILPA has issued guidelines, but enforcement varies by GP and jurisdiction. Sophisticated LPs typically negotiate side letters that strengthen these protections, while smaller LPs often accept the standard structure.

Last updated — 23 July 2026