Preparing for continued growth in secondaries

This excerpt was initially published in PEI’s 2025 GP-led secondaries report and is reproduced here with permission.

What role does the secondaries market play in addressing the liquidity challenges faced by private equity investors and why do you think it is poised for significant growth?

Scott Reamer: When the Federal Reserve began raising rates in March 2022, the cost of capital increased significantly over the next 18 months. Consequently, the initial public offering market declined by 80 percent from 2021 levels, and traditional M&A activity slowed, decreasing by 62 percent from 2021 to 2024 in USD terms.

It has been notable to witness the role of the secondaries market in addressing the current liquidity shortage. This is indeed a significant liquidity crisis. IPOs accounted for only 6 percent of US private equity portfolio company exits in 2024, which is a concerning statistic.

Over the last few years, we have seen some of the highest-profile and sophisticated investors increasingly tapping into the secondaries market, most recently Harvard and Yale. This is a market solution to a market problem, and we believe secondaries will play a significant role as a liquidity solution for LPs and GPs alike, not just for the 2017 to 2022 cohort, but on a go-forward basis.

Even if the IPO market doubled overnight, it would not solve the liquidity challenge given the number of portfolio companies needing exits and the capital to be returned to LPs.

Our view is that the secondaries market will be central to solving this critical problem of returning capital. We are extraordinarily bullish on the space. The $600 billion raised exclusively for the secondaries market highlights its potential as a vital liquidity solution for LPs and GPs seeking capital returns.

William Andreoni: The average holding period for many private equity funds extended over the years to six or seven years, which is approximately double the long-term average. Additionally, secondaries trading volumes increased by around 50 percent, reaching over $160 billion in 2024, according to Evercore’s FY 2024 Secondary Market Review.

Projections for the current year are estimated to be between $220 billion and $230 billion. This data indicates the significant role of the secondaries market in addressing liquidity challenges within private markets.

How is the rise of the secondaries market reshaping the operational landscape for private equity firms, and what challenges do back-office teams face?

WA: The secondaries market is enhancing private equity strategies by providing essential liquidity options for LPs and GPs. Its rapid growth stems from the increasing need for effective liquidity solutions within private capital. With secondary funds raising record amounts, this trend is expected to continue. To keep up, private equity firms must ensure their back offices are equipped to handle the added complexity and transaction volumes efficiently.

Dealmaking and liquidity remain at the forefront, with secondaries offering liquidity options; however, this comes with a need for a flexible and scalable back office to facilitate these transactions without a hitch.

Secondary transactions in private equity are complex and fast-moving. The diverse deal types, intricate valuations, large data volumes and needed technology advancements make a stable and agile back office essential.

Engaging in the secondaries market can add complex transaction volume to the back office, resulting in the need for better technology adoption. Back-office teams must manage complex data, navigate increased reporting demands, comply with regulations, and simply find ways to move ‘faster’ through transactions. Efficient finance and accounting operations are essential for handling this workload, maintaining efficiency, supporting growth and providing accurate stakeholder information.

Simply put, relying on Excel spreadsheets or outdated systems that are not fit for purpose in managing these complex transactions can impede your ability to manage these sophisticated deals effectively.

What tech solutions should private equity firms consider?

WA: Secondaries transactions rely heavily on granular data, which can vary significantly from deal to deal. Therefore, it is essential to prioritize detailed data capture, advanced data analytics and data automation. This requires having the right technology stack to process any key piece of data from inception to closing of a transaction.

Artificial intelligence and technological solutions can be highly beneficial, but effective controls are essential. Errors can arise when collating, structuring and reporting data, especially under tight timelines.

Therefore, firms must implement strong procedures to prevent inaccuracies. The faster the pace, the greater the risk of mistakes, making proper processes critical. Technology alone is insufficient; a back-office team with thorough understanding of private equity and secondaries transactions is equally crucial.

Robust controls in back-office technologies are vital for private equity firms in any market transaction. These controls ensure accuracy, compliance, efficiency, risk management and data integrity, which are key to navigating the market's complexities and maintaining investor trust.

Is there a role for artificial intelligence in the secondaries space?

WA: The growth of the secondaries market creates a compelling incentive for private equity firms to explore predictive analysis and forecasting tools, including AI-based solutions. Although AI adoption has a long way to go, particularly in the mid-market, it is expected to increase rapidly from 2026 onward. The evolution of secondaries may accelerate this trend because it focuses on how firms collect and generate insights from data quickly. In this context, AI could prove to be a powerful tool.

AI may enhance predictive analysis, data management, operational efficiency, risk management and decision-making in these transactions. As the market evolves, private equity firms will increasingly adopt AI-based solutions to manage data and reporting around these secondary transactions.

Do you see people, processes and technology as an important differentiator when it comes to performance or is this just going to be table stakes from now on?

SR: I think it will be a differentiator. The proliferation of secondaries transactions has significant implications for the front office and for fundraising, as well as for back-office operating systems.

The sales distribution aspect of the asset management value chain is a strategic source of liquidity and provides managers an opportunity to outperform their peers. The degree to which a private equity firm can return capital to investors regularly and on time because they have the right people, processes, data and systems to engage effectively in the secondaries market will influence how much capital they are able to raise going forward. Those that fail to adapt will be at a competitive disadvantage.

No part of the private asset management industry will be left untouched by the growth of the secondaries market and firms must review their entire value chain right up to asset gathering, to understand how to take advantage of this opportunity to achieve competitive internal rates of return and raise more assets than their competitors.

Just as the people, processes and technology required to prepare for an IPO differ to that required to prepare for a sale to another financial sponsor, the secondaries market has its own idiosyncrasies as well. GPs must make sure they have the right operating model in place to execute against the novel challenges of the secondaries market. This is a crucial point in the evolution of the private markets industry and private equity firms will soon need to adapt.

Do you believe that the growth of the secondaries market will drive further outsourcing in the private markets industry?

WA: The growth of the secondaries market is yet another catalyst prompting private equity firms to focus intensely on ensuring they have a well-designed back-office operating model that is built for both the current and future state of their business. Historically, many firms approached the insource vs outsource decision at the functional level (i.e., fund admin, compliance, management company, FP&A, tax, etc.), but the focus must now shift to designing a truly integrated back-office across all areas.

As dealmaking and reporting needs continue to evolve in the fast-paced secondaries market, firms need to focus on designing a scalable, fungible and flexible operating model that can accommodate operating data flow from these deals across the operational functional areas, as well as anything else that may come our way over the next few years.

In general, the growth of the private equity secondaries market is likely to drive further back-office outsourcing in the private markets as firms seek to enhance operational efficiency. PE firms want to remain focused on running the strategic elements of their business and front office as well as navigate the complexities of the expanding market.

SR: Over the past two decades, this industry has seen many structural changes that have affected the way asset managers run their businesses. This is the latest of those changes, although it may well prove to be among the most important. Historically, whenever there has been a structural change in the operating environment, it has forced renewed discipline on the division-of-labor dynamic. Managers have had to reconsider how they allocate the limited time and resources within their value chain.

Introducing a new liquidity source with its specific requirements will lead proactive firms to reassess which business functions should be retained internally and which should be outsourced. The discussions we are having with chief financial officers and managing partners regarding target operating models primarily focus on these divisions of labor. GPs must determine what is fundamental to the enterprise value they aim to enhance through their operations and where they should concentrate their efforts.

We think that the growth of the secondaries market serves as a catalyst for this inward reflection and reanalysis of the division of labor. Some managers may decide to develop the necessary skills in-house to exit via the secondaries market. Consequently, they might consider outsourcing other aspects of their business that are less central to the enterprise value they aim to create.

Click here to download PEI’s 2025 GP-led secondaries report, “Balancing act. US secondaries defy unsettled markets”. The full magazine includes this interview with RSM leaders, William Andreoni and Scott Reamer