Inside Private Equity - Issue of April 23, 2025

The secondary private equity market appears to be a mirror image of the primary market: whereas investors typically entrust their capital to funds to finance companies over a period of about ten years, some choose to sell their positions before maturity. This early sale is driven by very practical considerations: rebalancing a portfolio that has become overly exposed following market movements, regaining liquidity when distributions slow down, or executing a strategic pivot under new management. On the other side of the table, other institutional investors are buying these already-invested stakes, drawn by greater visibility into the assets, reduced risk (as the early years are the most critical), a purchase discount, and faster cash generation. But these advantages have their downside. The secondary market is a highly technical one, driven more by statistics than fundamentals, where investors have neither direct access to the companies nor operational leverage over their value creation. Performance there is generally lower than in the primary market, and return potential is inherently limited by the maturity of the assets. Selection is therefore based on very specific criteria: the age of the portfolio, the use of leverage, the size of the funds, and the type of strategy—particularly the distinction between transactions initiated by investors (LP-led) and those orchestrated by the managers themselves (GP-led), with the latter being closer to traditional private equity while remaining structured to their advantage.In this context, the secondary market is neither a better nor a worse alternative, but a complementary tool with its own rationale. It addresses specific needs for liquidity and the optimization of the risk/return profile, but does not replace the value creation dynamics of the primary market. It is for this reason that certain strategies, such as thoseAltaroc, have historically favored the primary market to maximize long-term performance multiples, while now viewing the secondary market as an opportunistic lever to be used in a targeted manner within new solutions.Beyond these market mechanisms, the issue highlights another key point: investing in private equity is not simply a matter of choosing a fund, but of building a comprehensive strategy. A private investor must think in terms of cash flows over time, tax implications, and succession planning. The very nature of how funds operate (progressive capital calls followed by deferred distributions) requires a planned approach, inspired by institutional investors. It is this logic that allows investors to either generate regular income over time or capitalize over the long term to build significant wealth. In both cases, the structuring (holding company, life insurance, civil partnership, etc.) becomes crucial for optimizing net performance and wealth transfer.Finally, the example of professional athletes illustrates this logic well: despite high incomes that are concentrated over a short period, their long-term horizon and lack of immediate need for liquidity make private equity particularly well-suited, provided the groundwork has been laid beforehand (protection, tax planning, financial discipline). Thus, a common thread runs throughout this issue: private equity is a powerful but demanding asset class that only fully reveals its potential when integrated into a coherent strategy, designed for the long term, and supported by professionals.