Secondary funds are investment vehicles that acquire existing interests in private market funds, such as private equity, private credit, real estate, or venture capital, from current investors. These funds provide liquidity in an otherwise illiquid asset class and have become a strategic tool for portfolio management, risk mitigation, and capital efficiency.
This article offers a practical overview of what secondary funds are, how they function, and why they matter to fund professionals, advisors, and service providers.
What Is a Secondary Fund?
A secondary fund is a pooled investment vehicle that purchases pre-existing investor commitments in private market funds. These commitments may include:
Limited partner (LP) interests in private equity, credit, real estate, or venture capital funds
Direct investments in companies or assets
Structured portfolios of fund stakes or co-investments
The seller is typically an institutional investor, such as a pension, endowment, or family office, seeking liquidity, portfolio rebalancing, or regulatory relief. The buyer (the secondary fund) acquires these interests at a negotiated price, often at a discount to net asset value (NAV), depending on market conditions and asset quality.
Why Do Secondary Funds Exist?
Secondary funds serve several practical purposes:
Liquidity: They allow LPs to exit long-term commitments before maturity
Portfolio Management: Sellers can rebalance exposures across strategies, vintages, or managers
Price Discovery: Transactions provide market-based valuations for otherwise illiquid assets
Risk Management: Buyers can diversify across funds, geographies, and sectors with known performance histories
For fund managers, secondary transactions can also help clean up cap tables, resolve legacy investor issues, or facilitate GP-led restructurings.
Common Transaction Types
Secondary funds participate in a range of deal structures:
LP Stake Sales: Buying fund interests from existing LPs
GP-Led Secondaries: Sponsors initiate transactions to restructure or extend fund life
Tender Offers: Offering liquidity to multiple LPs simultaneously
Preferred Equity: Providing structured capital to funds or portfolios
Continuation Vehicles: Single- or multi-asset funds created to extend ownership under the same GP
Each structure has different implications for pricing, diligence, and execution complexity.
Who Participates?
Participants in the secondary market include:
Sellers: Institutional LPs, banks, insurance companies, fund-of-funds, and family offices
Buyers: Dedicated secondary funds, multi-strategy asset managers, and opportunistic investors
Intermediaries: Advisors and brokers who facilitate pricing, diligence, and negotiation
Fund Sponsors: GPs who may initiate or approve transactions involving their funds
Prominent Players and Market Growth
The secondary market has grown rapidly, with transaction volumes exceeding $150 billion annually in recent years. The largest and most established players include:
Ardian
Blackstone Strategic Partners
HarbourVest Partners
Lexington Partners
Goldman Sachs Asset Management
StepStone Group
Pantheon
LGT Capital Partners
These firms have raised tens of billions in dedicated secondaries capital and often lead large, complex transactions. However, the space is evolving quickly. Boutique firms, emerging managers, and specialized strategies, such as credit and infrastructure secondaries, are gaining traction. The influx of new entrants and capital sources reflects a broader trend: secondaries are no longer niche, they’re becoming core to private market investing.
Final Thoughts
Secondary funds have become a foundational part of the private markets ecosystem. They offer liquidity, flexibility, and strategic optionality to investors and fund managers alike. As the market continues to mature, understanding the fundamentals of secondary funds is essential for anyone involved in fund formation, operations, or capital deployment.