Secondaries Outlook 2025
Where do we see the sector going in the next 5-10 years? More capital being raised than ever, expasion to credit strategies, and rising returns are all exciting, but how much of this trickles down to someone going into secondaries out of undergrad (comp, exits wise)?
just about to join a secondaries firm as an AS1 in London - interested in the above also
It's an asset class that's been growing for years now. A few things I think that are tailwinds:
I think it is a great place to be in the next 5-10 years. Pay may always be discounted to some extent from traditional PE, but it's still a lot of money and seems like any carry has a better (and quicker) chance of coming to fruition. Not sure many people actually exit from this to PE/VC (other way around really), if you did move it would likely be to some family office doing primary directs and secondaries.
This is a great overview. I’d also add that WLB is much better in secondaries
U may be paid slightly less than ur PE peers but I personally think it outweighs the zero life you’d have in PE. Lastly, if u get carry, it’ll be paid out sooner since duration is shorter
Flip side - secondaries could be getting overcrowded. Continuation vehicles don’t have real proof of track yet, same goes with PC. Also, discounts to NAV for LP led deals may be squeezed as more GPs enter the space
I tend to agree the secondary market is overcrowded in PE and getting there in VC. In the past 6 months I've had 10+ VC secondary focused firms hit me up, all doing the exact same thing (buying late stage VC/GE assets where employees and early investors want out) and the prior 5 years probably had 3 hit me.
The issue with discounts in PE secondaries is we're in a time where said valuations are a fugazi as the company's are not worth the stated marks (i.e. company is worth 70% of the last NAV so paying a 20% discount is still ~10% higher than the marketable value of the company). There's so many players in the space all hunting the same assets where discounts are few and far between. The Ivy's are selling more or less at par...The only funds with a real advantage are hunting way down stream or doing something unique (Banner Ridge - but their funds are too big now).
WLB is very firm dependent. Bigger shops get crazy amounts of volume and their diligence tends to be much more buyout-esque.
Source: know a secondaries associate at a big fund
Yep, I’m at one of the larger players and rarely leave before 12, which is still better than my banking hours since we barely get any weekend work but not the WLB I see being pitched on these secondaries threads.
What is the differentiating factor of a secondaries investor? Relationship w GP+LP or asset/indutry insights?
Not going for auctioned deals which is basically every single transaction in the market today...Small shops can be more nimble and maybe some FoF players in niche areas can have an advantage given relationships with GPs.
relationships as it allows access to off market deals which then allows for greater discounts to NAV
I think the biggest problem in the near future is the competitiveness of the processes, especially for LP leds. Very crowded, lots of dry powder and some bribing activity amongst the buyers and brokers. Discounts are shrinking.
Key differentiator going forward will be on the ability of the buyers to originate proprietary deals, especially with sponsors.
Private wealth will play an increased role too.
Scale is extremely important in secondaries. The market is essentially an oligopoly. If you land at a large firm there is no reason to leave. I expect much of this new private wealth tourist type capital to fizzle out
Don’t agree PWM fizzles. It should only increase. Secondaries is a great tool for UHNW to gain PE exposure without 10+ yr of illiquidity
The issue is none of these HNW individuals have invested in a secondary fund until 2019 (or any drawdown fund). They don't realize the 40% IRR shown in year 2 goes to 10% in year 18 and the fund ends up at a 1.6x.
I come from a wirehouse and large RIA before FO and I feel pretty strongly the retail channel will get destroyed the next actual blowup and never come back. Banks will be terrified to offer products, namely quasi-liquid funds. Ends up the same way as HFs post GFC, banks got the shit sued out of them and never really touched in a meaningful way again because of it.
My overarching thought on private markets in general is the PE/VC/PC/RE industries are mature in their lives and fundraising in the OG worlds (pensions, E&F, etc.) are drying up so they're hunting for the dumbest investor in the room which is FAs and HNWs. Every semi relevant firm is hammering this space to death which just won't work out for LPs in the long run IMO and probably breaks some GPs as well.
Ignore title - I'm currently recruiting for some secondaries roles coming out of my analyst program. Been trying to find some more details here as to what the interview process looks like coming out of banking - how much different is it than recruiting for direct buyout? Is there a unique case study / modeling component usually?
Mine was 5 rounds. 2 of them technical (1 quick LBO / LP cash flow and one take home full case study with LBO)
Firm is MM buyer
Bump - who are the smaller firms, and what are the WLB there look like?
Secondaries advisory WLB is the same as M&A and at some shops, worse.
Considering how much money the top PCA groups on the street are making this isn’t surprising at all.
Secondaries are on fire right now because there was a ton of money flying around 5 years ago, which led to funds buying up everything in sight at primo valuations.
The chickens have now come home to roost, and they can offload some of these investments to secondaries funds, which are buying them for ~80% of (if not materially less than) their NAV (so probably a fair price, after haircutting whatever ridiculous premium the original funds paid). Once things settle down, rates normalize / moderately fall, and funds acclimate to the new normal and aren't splashing the pot, there'll be less incentive to dump stakes / fewer opportunities for secondaries funds.
Not to say there won't always be opportunities in secondaries for those who actually do their diligence to get some great deals, but there's a reason the sector was on fire. Similar to everyone talking about the age of private credit - no wonder - money was free. PC firms raised capital during COVID (money was everywhere) and then interest rates skyrocketed. Compare that to the last 20+ years (40 even?), where interest rates (on average) continued to fall, and you see why that period was the heyday of private equity.
Howard Marks was right, FED is a huge reason for the success of PE, PC, and now Secondaries. You also realize how lucky the trailblazers were in private equity to ride declining interest rates for decades. Such a boon to borrowers and asset owners. After the initial cratering of interest rates post-COVID, the opposite became true.
Agree - so which industry actually has structural tailwinds supporting it besides fed decisions?
Requires some thought but that's definitely the name of the game
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My bet is LP secondaries will eventually trade on a single platform in 5-10 years. GP-led secondaries are a different story.
It’s been tried many times. GPs would never allow it
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