Trends driving the market
At present, we see a number of trends in the secondaries market, both in the GP and LP segments of the secondaries market.
Counter-cyclical nature and secular trends
In the past, secondaries were generally considered as a counter cyclical sub-asset class, as secondaries tended to perform well during economic downturns. However, this dynamic has shifted as long-term, secular economic drivers now underpin the secondaries market. One notable secular driver is the growing recognition of the benefits of holding assets for longer periods in order to maximize value creation. Indeed, the rapid growth of GP-led secondaries, in particular continuation funds, as these funds allow GPs to extend the life of high-quality assets, which offer investors long-term exposure to said assets and potentially higher returns upon exit. Furthermore, secondaries have now become a well-established portfolio management tool, offering liquidity and enabling portfolio managers to calibrate their exposure to a particular vintage year, sector or geography. This evolution reflects the increased sophistication and integration of secondaries into portfolio management in general, and we expect these trends to continue along these lines in the coming years.
GP-led secondaries
In the GP-led market, we see that continuation vehicles are steadily gaining acceptance and we expect a strong pipeline of such continuation vehicles for the second half of 2024. In addition, the liquidity that such a vehicle can provide is highly appreciated by LPs especially in an environment where merger and acquisition (M&A) activity has decreased, and the route of exiting a company via initial public offering (IPO) significantly diminished in 2023. This shift makes GP-led secondaries one of the few viable options for generating liquidity, further fueling their growth and attractiveness in the market, a trend which we expect to continue in the latter half of 2024.
LP-led secondaries
The trend of LP-led secondaries has reached record levels, driven by a rising frequency of LPs seeking liquidity. This surge has brought transaction volumes to new heights, bolstered by high levels of fundraising from both new entrants and established large secondary buyers. Not only has the volume of LP-led secondaries increased, but the size of the transactions too. In the first half of 2024, we saw 10 LP-led transactions of USD 1 billion or greater, whereas in 1H23 there were only six such deals of this size. Indeed, based on these observations we expect this trend to continue into the second half of 2024 and into early 2025.