Succeeding with secondaries

In 2024, almost 100 secondary funds raised $101.6 billion, a global record. Another record occurred on the supply side as LPs sold $162 billion of private equity stakes on the secondary market, up 45% from the year before.1 The reasons behind this boom are complex, and so are fund structures. One thing is clear, though: secondaries are here and growing.

Secondaries are hot right now, but they're hardly new. Since the late 1970s, secondary funds have provided liquidity to LPs in private equity funds, which needed to sell those positions. While these so-called LP-driven secondaries continue to dominate the current market, GPs have recently decided to get in on the act, creating GP-driven secondaries or “continuation funds” (CFs, also called continuation vehicles or CVs) that hold a single asset or several companies from an existing fund. The current fund’s LPs can either cash out or transfer their position to the new fund.2 Both CFs and LP-led secondaries provide liquidity to LPs and also help both parties with portfolio management.

Why are secondaries so popular right now? Can they meet LPs' increasingly desperate need for more liquidity and further tie LPs' interests to new GP-led funds? What drawbacks or pain points must be considered about these exit vehicles?

LP-driven secondaries have traditionally surged during dips in the private markets. An enduring liquidity drought can squeeze the LPs’ parent organizations. If the public markets have also collapsed, stock sales—the typical fallback in these situations—become costly, especially since an ongoing private market position requires the LP to meet capital calls. LPs take on private market commitments assuming distributions will fund the calls, which usually works—until it doesn’t. And the private equity industry’s velocity heading into 2023’s slowdown created just that situation. LPs invested enthusiastically in the frothy market—until the Federal Reserve boosted interest rates, inflation flared, and the macroeconomic situation became rocky. Exits ultimately crashed to a halt.

LPs may want to exit a private market position for several reasons. Along with reducing the burden of capital calls, they may want to recalibrate their allocations to asset classes, specific fund managers, or companies and industries.

The Limited Partnership Agreements (LPAs) that guide private market fund management generally allow for exits in some situations. Typically, the LP first offers its position to investors in the same fund, and only after that to a secondary fund. Such a transaction is very customized. The secondary fund purchases the holding at a discount to the Net Asset Value (NAV) and then becomes an LP itself in the original fund, responsible for capital calls but also receiving distributions.

In 2024, demand for LP-led secondaries boosted both volumes and pricing. These transactions made up 54% of the market, accounting for $87 billion. Pricing reached post-2021 highs: 89% of NAV on average; 94% of NAV for buyouts, and 75% for venture.3 Part of this stemmed from LP's willingness to sell desirable portfolios. Of the sellers, 40% were first-time LPs driven more by portfolio management issues than liquidity needs.4 (A third type of seller on the secondary market is a startup founder or employee who wants to cash out their stock option grant.)

CFs, the secondary transactions driven by GPs, first emerged in 2008, when exits from private equity funds hit the roadblock of the Global Financial Crisis. The new fund involves new LPs in addition to any investors that retain their positions.

CFs hit a record of $74 billion in 2024 due to four major drivers:5

• LPs’ need for liquidity. With CFs, GPs can balance the LP's need for liquidity and their desire to get strong gains from a portfolio company.

• Limitations of secondary funds. Secondary funds have long been a niche part of the private equity landscape. Despite a recent surge in fundraising, they cannot meet the current demand.

• Constrained fund lifespans. Most private equity firms have lives between seven and ten years, which may force an asset sale at a time that’s not ideal. (KKR lost $730 million because it had to sell RJR Nabisco inopportunely as its fund wrapped up.6)

• Difficulty among GPs in finding talent to add value to portfolio companies. Few fund managers apart from firms like CD&R possess the talent and time to systematically add value to portfolio companies. Instead, they prefer to sell into a rising market to capitalize on multiple expansion. CFs allow this.

In 2023, CFs made up 86% of GP-led transactions, and 55% of these were single-asset vehicles (SACFs).7 Not surprisingly, larger companies are more likely to be in single asset funds, due to the underlying costs of transaction organization, due diligence, and the need for specialized attention from the GP.8 Between 2018 and 2024, 30% of SACFs were valued above $1 billion.9

GPs like these structures not just because LPs get off their backs about liquidity, but also because they usually are classified as “exits” and trigger carry payments. LPs accept them grudgingly, unhappy about the extended fund life, fee payments, tight time pressure, and inadequate information to evaluate the offerings, especially if they require board approval. But any liquidity is better than none.

Research has shown that both GP- and LP-led secondaries perform strongly. CFs outperform buyout funds and have less than half the risk (9% loss ratio for CFs vs. 19% for buyout funds.)10 For 87% of single-asset CFs, pricing for the roll-over was at or above 90% of NAV, although only 71% of multi-asset CFs reached that level.11

In vintages since 2012, secondary funds have produced similar or better IRRs than buyout funds. This outperformance stems from diversification and maturity among the assets, which are usually acquired when they are six years old or older. 12

CFs provide three benefits for investors:

1. “Positive selection bias”: The GPs clearly believe in the company’s prospects and are actively committed to it.

2. Reduced “blind pool” risk: The CF’s performance is not offset by the poor performance of other assets.

3. Increased alignment: CFs use specialized transaction structures to ensure alignment.

Initially, LPs viewed CFs warily, given the potential for conflict of interest. But with increased transparency and better alignment, both new and existing LPs have accepted the vehicles. A key matter for LPs has been improving internal processes to be able to respond more quickly to GP-led CFs. For instance, 14% of LPs have revised their internal processes to speed decision-making on such deals. 13

Even so, LPs need clear data from their GPs to assess the CF, including:14

1. A compelling rationale for the CF.

2. Full alignment across GPs, existing LPs, and the new investors joining the CF.

3. Effective communication across LPs.

4. A clear articulation of the options for the LPs.

5. A well-documented fair value for the transfer.

One of the fundamental challenges with secondaries, though, is that they require high-quality assets to sustain attractive pricing.

The industry is starting to consider GP-led CFs, particularly single asset vehicles, as a fourth standard exit route, along with IPOs, trade sales, and secondary buyouts (sales to other buyout firms). During 2024, 85% of LPs said they saw more CFs than in the past.15

LPs have noted that they are still grappling with the time required to make an informed decision about whether to participate in a CF—only 11% said they always had enough time to make the decision.16 A critical matter here is easy access to reliable data, along with in-house legal support. With the sudden increase in CFs, many LPs have not yet increased their investment team’s capability to analyze these opportunities.17 This does not even consider the importance of back office support for such decisions.

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1 “Investors offloaded record volume of private equity stakes in 2024, Financial Times, https://www.ft.com/content/e8bbc1b8-93fb-4f0f-9c95-65341c299f30 cited in Macfarlanes.
2 Yazhou Sun, “Why the venture capital secondary market is so hot right now,” Bloomberg, April 28, 2025, https://www.bloomberg.com/news/articles/2025-04-28/why-the-venture-capital-secondary-market-is-so-hot-right-now
3 “Private markets secondaries: FY 2024 market recap & outlook,” Blackrock Private Markets, 2025, https://www.blackrock.com/institutions/en-us/literature/investor-education/fy2024-secondary-market-recap-and-outlook.pdf.
4 “Private market secondaries: FY2024 market recap & outlook,” Blackrock Private Markets, 2025, https://www.blackrock.com/institutions/en-us/literature/investor-education/fy2024-secondary-market-recap-and-outlook.pdf
5 Blackrock and Phillipp Patschkowski and Ben Perk, “The Rise of GP-Led Secondaries,” Newberger-Berman, December 1, 2022, https://www.nb.com/en/global/insights/whitepaper-the-rise-of-gp-led-secondaries
6 Kobi Kastiel and Yaron Nili, “The Rise of Private Equity Continuation Funds,” Chicago Booth Stigler Center Working Paper Series No. 340, January 2024, https://www.chicagobooth.edu/research/stigler/research/-/media/5d46328c68e0466b9787f42d98275f3b.ashx
7 The balance of GP-led secondaries are preferred equity for 9% and tender offers, for 5%. Evercore, 2023 Secondary Market Survey Results, February 2024, and Evercore, 2022 Secondary Market Survey Results, February 2023, cited in Valerie Handal et al., “Research valuates growing adoption of continuation transactions,” HarbourVest, Sept. 25, 2024, https://www.harbourvest.com/insights-news/insights/research-validates-growing-adoption-of-continuation-transaction.
8 https://www.privatecapitalsolutions.com/insights/navigating-single-asset-continuation-funds-part-1
9 Christopher Good et al, “Navigating single asset continuation funds: part 1,” Macfarlane’s Private Capital Solutions, March 27, 2025, https://www.privatecapitalsolutions.com/insights/navigating-single-asset-continuation-funds-part-1
10 Morgan Stanley Private Capital Advisory, The Case for Continuation Funds: An Initial Performance Review, August 2024, cited in Adam Le, “Continuation funds have the potential for outsized returns-Morgan Stanley research,” private equity International, March 6, 2024, https://www.privateequityinternational.com/continuation-funds-have-the-potential-for-outsized-returns-morgan-stanley-research/.
11 Lazard 2024 Secondary Market Report, in Blackrock.
12 Hannah Zhang, “How do secondaries funds perform?” Private Equity International, September 2, 2024, https://www.privateequityinternational.com/how-do-secondaries-funds-perform/
13 Silas Sloan, “Continuation funds: Should LPs commit or roll?” Private Equity International, December 2, 2024,
14 From “GP best practices in continuation vehicle transaction execution,” Baird Newsroom, June 26, 2024, https://www.rwbaird.com/newsroom/news/2024/06/gib-gp-best-practices-in-continuation-vehicle-transaction-execution
15 Sloan, “Continuation funds: Should LPs commit or roll?” Private Equity International, December 2, 2024, https://www.privateequityinternational.com/continuation-funds-should-lps-commit-or-roll/
16 Sloan, “Continuation funds: Should LPs commit or roll?” Private Equity International, December 2, 2024, https://www.privateequityinternational.com/continuation-funds-should-lps-commit-or-roll/
17 Jimmy Caraluzzi, investment management specialist, quoted in Sloan, “Continuation funds: Should LPs commit or roll?” Private Equity International, December 2, 2024, https://www.privateequityinternational.com/continuation-funds-should-lps-commit-or-roll/