Secondaries

Why investors consider secondary investments

Secondary investment markets provide access to more mature opportunities in private markets, adding liquidity to a traditionally illiquid asset class. Secondary investments can provide an additional source of risk-adjusted returns, allowing you to invest more directly in underlying companies and expanding exposure to specific sectors or geographies.

In addition to risk-adjusted returns, secondary investments offer the potential for greater diversification, specificity and control over assets and exposures.

We can help you build secondary portfolios with a variety of strategies. These can include single and multi-asset general partner (GP) led deals, traditional limited partner (LP) led transactions, portfolio or structured deals, secondary directs and other niche opportunities. Below we outline four of the most common benefits.

Immediate exposure to private market assets via the secondary market can reduce the management fee (basis) and shorten the time period required for value creation efforts to materialize.

Depending on the sub-type of a secondary transaction, an interest might be acquired at a discount to the latest valuations. These elements allow secondary investors to minimize or eliminate the J-curve, with varying levels of mitigation depending on the exact sub-type and deal-specific characteristics.

Understanding secondary investments

Investing in private assets via the secondary market involves purchasing a private market asset or fund from the existing owner of these assets. In a secondary transaction, the buyer requires the existing commitment and the remaining unfunded commitments of the seller. The buyer is typically acquiring a mature asset or portfolio.

The secondary transaction offers several benefits for the purchaser-- greater visibility and potentially lower risks, putting your money to work faster, potential for increased returns, and diversification. When investors commit to a primary fund, there is an element of blind pool risk. This means investors don't have full visibility into which investments the fund manager will make in the future.

In a secondary transaction, investments have already been made, providing the secondary buyer with greater visibility into the underlying assets, associated risks, and return history. Primary fund investors tend to experience negative returns during the early life of the fund, with return profiles turning positive as investments mature and are realized. This is commonly known as the J curve.

In secondary transactions, because the commitments have already been made, the buyer can seek to mitigate the J curve effect and potentially benefit from a shorter payoff profile. Secondaries can often be purchased at a discounted value of the underlying assets, providing the potential to increase returns. Secondary transactions enable investors to add a range of historic vintage years to their portfolios, which can further diversify risk and return profiles.

We believe there are four key attributes required for successful secondary investing. You need a dedicated team of investment professionals, access to the right data and management systems, established networks and deal flows, and the expertise and structure for timely execution. Effective investing in secondary transactions is resource-intensive and requires specific skills. We're here to help.

Considerations for secondary investments

Achieving success in the secondary market requires strong relationships with asset managers and intermediaries, dedicated resources, access to the right data and robust oversight and due diligence processes. We can help you build a strong portfolio based on your specific objectives.

Accessing secondary transactions across all asset classes (including private equity credit, real estate, infrastructure and impact investing) requires established and strong relationships with market participants, including asset managers, intermediaries and limited partners (LPs).

In secondary transactions, market participants look to investors that are considered trusted and credible partners. These partners can demonstrate the ability to supply the level of capital at the right time, quickly and efficiently, particularly when time schedules are tight.

Investors need up-to-date information on private market asset managers and funds, underlying portfolio companies and assets. They also need specific market data on comparable transactions, public company valuations and sector activity.

As many asset managers now cover multi-private asset classes, with underlying assets that can be interrelated to more than one sub-asset class, it’s important to understand how each works with the other. The ability to quickly disseminate relevant information for a secondary transaction is important.

A secure, agile technology system and sufficient resources are required to store and handle all the data so that the dedicated secondary investment specialists are able to access and process the information efficiently.

Secondary transactions have a high interdependency with a corresponding primary fund and its manager. You'll need a dedicated resource that can interact regularly with participants, conduct due diligence and represent you at the advisory board when required.

Secondary investment specialists need to be integrated within a broader transaction team that also covers co-investments. This allows the team to leverage the full spectrum of corporate finance expertise and complements the secondary investment team’s structuring skills.

Secondary transactions require established and consistent processes, including commercial review, investment decision-making, robust risk management, legal review and tax due diligence.

These processes are particularly relevant as secondary deals come in a variety of different structures and mechanics. Understanding the features and knowing how to manage them from commercial, risk, legal and tax perspectives are crucial to ensuring the success of your investments.

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Secondary investment opportunities and solutions

Why investors consider secondary investments

Understanding secondary investments

Considerations for secondary investments

Co-investments

Private equity

Endowments and foundations

Choosing a semi-liquid private debt fund in a fast-growing market

Exploring the breadth of private assets available to wealth managers

Considerations for growing family wealth across generations

How we can help you with secondaries

Contact our specialist secondaries team

Secondary investment opportunities and solutions

Why investors consider secondary investments

1. Mitigating the J-curve effect

2. Reducing investor blind pool risk

3. Attractive risk and return and cash flow profiles

4. Ability to build exposure quickly

Understanding secondary investments

Considerations for secondary investments

Do you have access to quality asset managers and opportunities?

Do you have access to quality data and insights?

Do you have internal resources and skills?

Do you have established efficient processes?

Related solutions

Co-investments

Private equity

Endowments and foundations

Related insights

Choosing a semi-liquid private debt fund in a fast-growing market

Exploring the breadth of private assets available to wealth managers

Considerations for growing family wealth across generations

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How we can help you with secondaries

Introducing secondary investments

Introducing some of our team

Benjamin Baumann

Raelan Lambert

Chason Beggerow

Contact our specialist secondaries team