Reflecting on 2024 and anticipating 2025, the private capital markets generally continue to demonstrate resilience and adaptability despite broader economic uncertainties. In particular, the secondary market has seen significant developments, including the rise of new institutional participants and the expansion in asset classes such as private credit and infrastructure within the continuation vehicle (CV) space. These trends underscore the dynamic nature of the private capital markets and their evolving strategies.
Secondary Market Developments
In recent years, secondary market activity expanded considerably, with increased participation from and across investor categories. General partner (GP)-led transactions remained a central pillar of this growth, accounting for nearly half of total secondary market volume. The development of these transactions reflects a larger effort to optimize portfolio management through innovative structures, which allow fund sponsors to extend their investment length for high-performing assets while maintaining alignment with investor expectations.
Notably, the secondary market is providing essential liquidity solutions for limited partners (LPs) in private investment funds and vehicles and facilitating greater flexibility in portfolio adjustments. The growth highlights the critical role of secondary transactions in the wider private capital ecosystem. And as transaction structures mature, certain investors are increasingly focusing on governance, alignment of interests, and transparency to ensure that these deals serve their long-term strategic goals.
Moreover, the demand for secondaries transactions exhibits a complex relationship with other financial markers, such as merger and acquisition (M&A) and initial public offering (IPO) activities. During periods of elevated M&A activity, private funds often require liquidity to finance new acquisitions, which can drive demand for secondary transactions. Conversely, as M&A activity is reduced due to economic downturn, limited partners (LPs) may increasingly turn to the secondary market as a liquidity solution. Furthermore, a strong IPO market can reduce the need for secondaries by offering direct exits and faster capital distributions to investors, whereas a declining IPO market can often increase the demand for secondaries as a source of liquidity. These complex interactions emphasize how macroeconomic conditions and investor interests collectively impact the secondary market’s role in private capital. Recent slowdown in the M&A and IPO markets has provided a tailwind for the secondary market.
The Rise of New Continuation Vehicle Participants
The CV market continues to evolve with the entry of new participants, particularly institutional private equity (PE) buyout firms that traditionally focused on primary investments. These PE firms are now actively pursuing secondary market opportunities, marking a significant shift in the landscape. PE buyout shops are leveraging their expertise in deal structuring and portfolio management to navigate the complexities of continuation vehicles and GP-led transactions.
In contrast, sovereign wealth funds (SWFs) and public pension funds (PPFs) have historically been major players in the secondary market, and their involvement in the secondary market remains a cornerstone of the ecosystem. These institutions continue to bring substantial liquidity and demand for high-quality assets, ensuring a competitive and dynamic secondary market environment. That said, the addition of traditional PE buyout firms into the secondary market is expected to broaden the range of participants and elevate the complexity and sophistication of transactions.
In addition to institutional investors, the emergence of ’40 Act funds has been a defining trend in 2024 and a significant driver of demand in the secondary market (both GP-led and LP-led). It is estimated that over $5 billion of secondary capital has been raised in ’40 Act funds over the last year, and the acceleration in their usage does not look to be slowing down anytime soon. These are open-ended evergreen vehicles set up by secondary managers to tap into the growth of the retail market and, based on their terms and structure, provide dedicated available capital and access to private equity, offering liquidity, transparency, and flexibility. Historical allocations to private equity by retail investors have tended to be low (approximately 2% of portfolios are allocated to private equity, compared with 5% to 10% for pension plans and 20% to 40% for university endowments), clearly illustrating the great potential for expansion within the retail segment. These funds also serve to bridge the gap to underutilized capital in brokerage accounts and 401(k) plans, markets that are increasingly seen as the ultimate prize for private equity access.
Diversification of Asset Classes: The Growth of Private Credit and Infrastructure
The secondary market is expanding, with private credit and infrastructure experiencing notable growth. This development reflects the maturation of these asset classes and the recognition of the secondary market as a valuable tool for liquidity and portfolio management.
The developments in private credit and infrastructure highlight the evolution of the secondary market. As investors seek greater flexibility and new opportunities, the secondary market’s role in facilitating efficient capital deployment across diverse asset classes continues to expand.
Private credit
The secondary market for private credit has experienced a rapid expansion, exhibiting tremendous growth in the past decade. This growth stems from the maturity of the primary private credit market, which has led to an increased supply of secondary opportunities, and investors are now using the private credit secondary market to rebalance portfolios, adjust strategic allocations, and manage exposure to private credit.
Infrastructure
The infrastructure secondary market is also gaining momentum. With a compound annual growth rate of 24.9% from 2015 to 2023, the market is projected to exceed $27 billion by 2027. This growth reflects heightened demand for infrastructure investments and the evolving use of secondaries to provide liquidity and diversify exposure within the infrastructure space.
Anticipated Trends for 2025
Looking ahead, the secondary market is expected to sustain its momentum, driven by ongoing innovation in transaction structures and the growing participation of institutional investors and ’40 Act funds. The expansion of asset classes within continuation vehicles, including private credit and infrastructure, will further enhance the secondaries’ appeal in the marketplace. These developments highlight a shift toward more diversified and refined investment strategies that can adapt to changing economic conditions.
Institutional investors, particularly SWFs and PPFs, are likely to continue to play a central role in shaping the market environment. Their focus on governance, transparency, and long-term value creation will continue to set higher standards for market practices in secondaries. This trend illustrates the importance of aligning investment strategies with the ever-changing preferences of a sophisticated and demanding investor base.
Regulatory Developments and Key Considerations for Market Participants
Regulatory oversight remains a critical factor in the evolution of the private capital markets, including secondaries, along with business objectives of the parties involved. Effective management of these factors requires a balance between adhering to legal and regulatory frameworks and pursuing strategies that foster growth.
Market participants are advised to focus on the following key considerations:
- Proactively identifying and managing potential conflicts of interest
- Developing robust and transparent valuation methodologies
- Structuring transactions to address tax, regulatory, and compliance environments
- Aligning deal structures with the commercial objectives of investors
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