Overview of the Secondary Market

The secondary market allows investors to buy and sell interests in existing private equity funds.
It differs from the primary market, where investors commit directly to a new fund.
An investor may turn to the secondary market when seeking to recover liquidity before the initially scheduled maturity date.
An investor may also sell to rebalance their portfolio or adjust their asset allocation.
For the buyer, the main advantage is the ability to invest in a pre-established portfolio that is therefore easier to evaluate.
Since the assets are more mature, some of the risks associated with the early years of ownership may also have already been identified.
Investments can sometimes be purchased at a discount to their net asset value.
Capital distributions also generally occur more quickly than in a newly established primary fund.
On the other hand, the shorter investment horizon may limit the potential for long-term value creation.
Secondary funds can also be highly diversified, and their portfolios may be more complex to track.
Transactions are distinguished primarily by the age of the assets, the size of the fund, the potential use of leverage, and the nature of the transaction.
In particular, there is a distinction between “LP-led” transactions, conducted among investors, and “GP-led” transactions, organized at the initiative of the manager.
The primary and secondary markets thus serve different objectives and each has its own advantages and limitations.

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