More investors and LPs are turning to the secondary market for smarter private markets exposure.
In the private markets, patience is a virtue—but liquidity is power. Secondary funds play a vital role in bringing both to life. These funds provide liquidity solutions for Limited Partners (LPs) who want or need to exit their private fund positions early, while offering new investors access to mature, high-quality portfolios—often at attractive discounts.
Why Secondary Funds Matter
The traditional private equity or venture capital fund can take 10+ years to fully mature. For LPs, that means capital can remain tied up long after initial commitments—often with little or no distributions for several years. Secondary funds create a dynamic solution: they buy these existing LP stakes, offering early liquidity to sellers and potential upside to buyers.
This market has grown significantly in recent years, fueled by increased demand for flexible capital and the desire for more efficient portfolio management.
A Real-World Example
Imagine you invested in a venture capital fund with a 10-year life. It’s year five—on paper, things look promising, but you haven’t received any distributions. Now, your family finds the perfect home, and you need capital for a down payment.
While private fund investments are illiquid by nature, many LP agreements allow for transfers of ownership. Sometimes this requires offering the stake to the GP or other LPs first (via a right of first refusal), but often it can be sold to a third party—like a secondary fund.
To entice a buyer, the seller may offer a discount to the fund’s estimated value, creating a win-win: the seller gets liquidity, and the buyer gains access to a high-quality portfolio at a more favorable price.
Benefits to Existing LPs
Secondary funds offer current LPs a much-needed release valve when life circumstances or portfolio strategies change. Key benefits include:
- Liquidity in an illiquid asset class
- Flexibility to reallocate capital to new opportunities or priorities
- Improved portfolio management by trimming long-dated or underperforming positions
- Optionality without waiting a full decade for fund maturity
Benefits to Investors in Secondary Funds
Secondary investors benefit from favorable pricing, reduced timelines, and exposure to mature assets. Specifically, they:
- Buy into funds at a discount, boosting potential returns
- Enter later in the fund life, reducing the hold period
- Capture gains during the most lucrative phase, as many private funds realize most of their returns in years 5–10
- Gain access to funds that are often invitation-only during primary fundraising rounds
These advantages can significantly enhance internal rate of return (IRR) and overall portfolio efficiency.
A Note on Alternative Liquidity Solutions
In some cases, LPs may also explore credit facilities that lend against private fund positions. These are more common among larger or institutional-quality funds, and while they offer another form of liquidity, they typically require more infrastructure and may come with higher costs.
Sample Funds
- StepStone Private Markets (SPRIM) is a secondaries focused evergreen fund targeting institutional quality private equity and real asset holdings by purchasing at a discount through secondaries or co-investment offerings.
- AMG Pantheon Credit Solutions Fund (P-SECC) is also an evergreen secondaries focused fund but focuses on investments within private credit.
Closing Thoughts
Secondary funds create much-needed flexibility in a historically rigid asset class. Whether you're a current LP looking to rebalance, or an investor seeking discounted access to compelling portfolios, secondary funds offer a smart way to navigate the evolving private markets landscape.
If you’re curious how this strategy might fit into your broader portfolio, we’d be happy to have a conversation.
If you are seeking liquidity or are interested in learning more about accessing secondary funds we would be happy to help.