Private equity secondaries fundraising struggles to keep pace with demand

Private equity secondaries fundraising is accelerating, though not fast enough to meet the growing demand for liquidity from private equity investors and fund managers.

Twelve funds collected $38.77 billion in capital commitments this year through June 16, according to an S&P Global Market Intelligence analysis of Preqin Pro data. This puts private equity secondaries fundraising on track to exceed $60.78 billion from full year 2024.

A total of 215 private equity secondaries funds are actively seeking capital, the highest count in at least a decade, according to Preqin.

The funds are chasing a growing opportunity in secondary market deals, which reached a record $155 billion in 2024 — 15% higher than the previous record of $135 billion set in 2021, according to private markets advisory firm Campbell Lutyens. By contrast, the value of private equity and venture capital investments by primary funds in 2024, while higher than the prior year, remained 45% below the 2021 peak.

Long-term trends fueling the secondaries market include the expansion of the broader alternative asset universe and the mainstreaming of secondary sales as a portfolio management tool. Those trends are being inflected by the near-term liquidity needs of private equity investors and fund managers during an extended slowdown in exits that has diminished the return of capital to investors in the form of distributions, said Ben Perl, Neuberger Berman's global co-head of secondary private equity.

"The actual dollars in the secondary market available to supply liquidity are growing, but it's not growing as fast as the need for liquidity," Perl said.

Streamlining portfolios

Several multibillion-dollar limited partner (LP) private equity stakes have hit the secondaries market since the start of the year, highlighting the growing need for liquidity.

In May, the New York City pension systems completed a $5 billion secondary sale, described as one of the largest-ever secondary deals by a US pension fund. The group of five pensions unloaded stakes in 125 different funds in a move New York City Comptroller Brad Lander described as "streamlining our portfolios."

The endowments for both Yale and Harvard universities are among the significant private equity investors that are also planning multibillion secondary sales, according to multiple reports. University endowments tend to have outsize allocations to private equity and venture capital compared with other institutional investors, magnifying the impact of slowing distributions on their portfolios.

"There are a lot of investors who are overallocated [to private equity] in part because they're not getting the natural liquidity that they expected," Perl said.

As a trendsetter in alternative investments, Yale should draw in even more participants as it taps the secondaries market, Perl added.

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Accelerating fundraising

The supersized LP stake sales set "a new benchmark for what's achievable" in the secondaries market, said Gerald Cooper, global co-head of the Campbell Lutyens secondaries advisory practice.

The sales are also attracting other LPs to invest in secondaries funds, which, in turn, encourages more general partners to raise ever-larger secondaries funds.

Selling stakes on the secondaries market often involves a discounted sale price. Mega-buyout fund stakes sold at an average 9.2% discount on the secondaries market in 2024, while stakes in middle-market buyout funds sold at an average 12.2% discount to their net asset value, according to Campbell Lutyens.

"The value proposition that a secondary can offer to the market has never been more apparent than it is today, and people are buying into that thesis and putting capital into the asset class," Cooper said. "Especially if you overlay on top of that a feeling or a sense that the current private markets could be overvalued, then the secondary path is an interesting way to go."

The Market Intelligence analysis shows that private equity secondaries funds raised a total of $34.10 billion globally between Jan. 1 and March 31, the highest quarterly total in two years.

Limits on growth

Record-setting deal activity and building fundraising momentum have made secondaries the "sweet spot" for alternative assets, Ares Management Corp. CEO Michael Arougheti told a conference audience in May. Even so, the secondaries market remains "undercapitalized," Arougheti said.

Preqin Pro data shows global private equity secondaries dry powder was at an all-time high of $227.40 billion as of Sept. 30, 2024. However, that is only equivalent to about one-and-a-half times the private equity secondaries deal value recorded in 2024. In other words, there is enough capital to support about 18 months of dealmaking, Campbell Lutyens' Cooper said.

"[W]e would easily be able to get to $200 billion of transaction volume this year, maybe above $200 billion ... if there is enough capital to support it," he said. "It's not clear whether there is enough capital to get us there. I think we'll get close, but that may be the only thing that's holding us back."