The Rise of Secondary Private Market Deals: A Structural Shift in Exit Strategies

The private equity landscape is undergoing a seismic shift. For decades, traditional exits like IPOs and M&A were the primary avenues for liquidity. But as holding periods have stretched and macroeconomic headwinds persist, secondary private market deals have emerged as a structural solution to capital efficiency and liquidity challenges. In 2024 alone, secondary transactions hit a record $162 billion, with LP-led deals accounting for 54% of the total and GP-led strategies surging to $75 billion. This growth isn't just a cyclical blip—it's a fundamental reordering of how private equity capital is deployed and returned.

The Extended Holding Period Conundrum

From 2020 to 2024, private equity sponsors have grappled with a perfect storm: elevated entry multiples, cautious lending environments, and a global IPO market in retreat. By mid-2024, dry powder stood at $1.2 trillion, with over 40% of this capital having been on the sidelines for four years or more. The result? A backlog of sponsor-owned companies with extended holding periods, many of which are marked near cost but lack immediate exit pathways. Traditional M&A activity, for instance, declined by 61% in 2023 compared to pre-pandemic levels, while IPOs contracted by 80%.

This stagnation has forced LPs and GPs to rethink liquidity strategies. The average age of funds sold in LP-led secondaries dropped to a record low of 6.6 years in 2024, reflecting a shift toward monetizing assets earlier in their value creation cycles. For LPs, this means capturing cash flow neutrality or positivity in 50% of portfolios by 2024—a stark contrast to the 25% seen in 2023. Meanwhile, GPs are increasingly turning to continuation vehicles (CVs), which now account for 48% of GP-led volume. These structures allow sponsors to extend the life of underperforming or overvalued assets while providing liquidity to LPs—a win-win in an environment where traditional exits are elusive.

Capital Efficiency: Secondary vs. Traditional Exits

The capital efficiency of secondary market deals lies in their speed, flexibility, and alignment with LP priorities. Consider the following:
- Speed to Liquidity: Secondary transactions can close in months, whereas traditional exits often take years. In 2024, 56% of single-asset GP-led deals were priced at or above par, signaling strong buyer confidence.
- Cost Efficiency: Secondary deals avoid the high transaction costs and regulatory hurdles of IPOs. For example, a $5 billion secondary transaction in 2019 allowed a Japanese institution to comply with regulatory changes without the friction of a public offering.
- Performance Metrics: Secondary strategies historically deliver higher median IRRs (15.9%) compared to primaries (13.2%), with lower inter-quartile ranges. This is partly due to reduced blind-pool risk—investors in secondaries often gain access to mature portfolios with clearer valuations.

Traditional exits, by contrast, remain constrained. IPOs are subject to volatile public markets, while M&A faces high borrowing costs and geopolitical risks (e.g., tariff threats). In 2024, 87% of single-asset CVs were priced at or above 90% of NAV, underscoring the market's willingness to pay a premium for GP-aligned assets. This dynamic is particularly compelling for LPs prioritizing distributions to paid-in capital (DPI), a metric that saw 2.5x more LPs rank it as “most critical” in 2025 compared to 2022.

Structural Drivers of the Secondary Market Surge

Three forces are fueling the secondary market's rise:
1. Supply-Demand Imbalance: With $166 billion in dry powder targeting secondaries in 2023—just over one year's worth of deal activity—buyers are competing for a limited pool of high-quality assets. This imbalance has driven pricing power for sellers, especially those with younger, growth-stage portfolios.
2. Regulatory and Macroeconomic Dislocations: The “denominator effect” (public market declines leading to private equity overallocation) and the “numerator effect” (private market outperformance) have created dislocations. In 2022, 48% of sellers cited public market declines as their primary motivation, while 34% in 2021 attributed sales to overallocation due to private equity outperformance.
3. Innovation in Transaction Structures: Evergreen vehicles and semi-liquid funds, which focus on transactions with minimal unfunded capital needs, now account for nearly one-third of 2024 fundraising. These structures reduce execution risk and align with LPs' demand for predictable cash flows.

Investment Implications and Strategic Recommendations

For investors, the secondary market offers a compelling case for diversification and liquidity management. Here's how to position portfolios:
1. Prioritize LP-Led Secondaries: With 40% of the LP-led market now driven by first-time sellers, early entry into this segment can capture undervalued portfolios. Look for funds with younger vintages (e.g., 2018–2020) and strong sector-specific focus.
2. Leverage GP-Led Continuation Vehicles: CVs are ideal for assets with growth potential but limited M&A or IPO readiness. In 2024, 56% of CVs were priced at or above par, making them a capital-efficient exit for GPs and a value-creation opportunity for buyers.
3. Monitor Macroeconomic Catalysts: Interest rate normalization and geopolitical stability in 2025 could unlock further secondary activity. Track metrics like DPI and fund liquidity ratios to identify entry points.

Conclusion

The rise of secondary private market deals is not a temporary fix but a structural evolution in private equity. As extended holding periods persist and traditional exits remain constrained, secondary transactions—driven by LP-led sales, GP-led CVs, and semi-liquid vehicles—will continue to redefine liquidity and capital efficiency. For investors, the message is clear: adapt to this shift by allocating capital to secondary strategies that offer speed, transparency, and risk-adjusted returns. In an era of prolonged uncertainty, the secondary market is no longer a niche—it's a necessity.