Podcast Digest | Private Equity Secondaries Market Surges as Investors Seek Liquidity Solutions

What's New

In a recent Fund Shack podcast, Etienne Deshormes, CEO of Elm Capital, details how the private equity secondaries market has evolved from a distressed-sale mechanism to a sophisticated portfolio management tool. Speaking with host Ross Butler, Deshormes explains how rising interest rates and market volatility have driven both LPs and GPs to increasingly embrace secondaries as a strategic solution.

Why It Matters The transformation of the secondaries market represents a fundamental shift in how private equity investors manage portfolios and access liquidity, particularly crucial in today's high-interest-rate environment where traditional exit routes have become more challenging.

Key Quotes

• Market Evolution: "The secondary Market is a way to provide liquidity to a market which is by definition illiquid"

• Crisis Impact: "This is the only time in our career where we sold funds at a 100% discount... during the Global Financial Crisis"

• Modern Usage: "Today people realize the secondary Market is a tool to manage their portfolios, not just to get liquidity in a distress situation"

Big Picture Drivers

• Denominator Effect: Public market volatility has forced LPs to rebalance their private equity allocations, driving secondary sales

• Interest Rates: Higher borrowing costs have made traditional exits more difficult, pushing GPs toward continuation funds

• Dry Powder: Approximately $200 billion in secondary fund capital needs to be deployed over the next few years

By The Numbers

• Market Size: Secondaries represent about 15% of the overall private equity market

• Pricing: Typical discounts range from 10% for quality assets to 30-35% for tail-end portfolios

• Returns: Secondary funds target 1.6-2x multiples versus 2.5-3x for traditional buyout funds

Key Trends to Watch

• Continuation Funds: Growing acceptance of GP-led secondary transactions as a portfolio management tool

• Technology: Emergence of AI tools for portfolio valuation and streamlined transfer processes

• Institutional Adoption: Traditional investors like pension funds and family offices increasingly viewing secondaries as strategic tools

The Bottom Line for Investors Investors should consider allocating approximately 15% of their private equity portfolio to secondaries, diversifying across high-quality assets, tail-end portfolios, and specialized strategies like credit and infrastructure secondaries to optimize returns and manage liquidity needs effectively.

Full Podcast