Long term prospects of secondaries
Seeing as there is significant hype right now around the space, how sustainable long term do people think the growth/hype will be? IMO the current high rate environment feeding into the denominator effect / general liquidity demand may not be long term sustainable and the long term hype may be overblown, but really want to hear counterpoints etc.
Secondaries have been around for more than 25 years through multiple market cycles. Has it grown? sure, but so has every other asset class. As long as there is Private Equity, seconadaries aren't going anywhere.
Currently, from doing a little research from market reports, some surveys show only ~25% of LPs actively consider secondaries as an option for portfolio liquidity and trading, with this number growing by the year. If we use thw Jefferies report (https://www.jefferies.com/CMSFiles/Jefferies.com/files/IBBlast/Jefferie…) 50% of LPs are first time sellers, double that of the previous year. That means more LPs are starting to find the secondaries market useful and can be the start of far more activity. That means there are a LOT more players who can be involved as the secondaries markets can be more involved in the exchange and sale of direct positions. The general conversation in the secondaries circle is that the bottleneck problem isn’t a lack of demand/activity, but a lack of capital to support that demand/activity. Take with a grain of salt, but I like to think of it as a comparison to stocks. The IPOs (primary market) only exist as a small portion of stock trading and activity. The bigger market exist for its sale and exchange. Way back when the stock market was in its infancy, it was mostly driven by listings and only a few brokers traded positions. Versus now. Its not a perfect comparison, due to factors such as securitization regulation etc, and scalability, but worth to consider longterm growth and sustainability.
How do you see secondary activity developing over time in terms of liquidity? Likely won’t be to the degree of equities but how common/proportional to total activity do you generally predict secondary activity?
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