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Understanding Private Equity Secondaries
Secondaries investments have evolved over the past 15 years into a distinct asset class, offering investors a different way to access private equity, hedge funds, credit, and more. Providing investors with access to specialized funds at potentially attractive discounts, combined with a faster path to liquidity compared to primary investments.
In this article and accompanying video series, A.J. Jain, Head of Secondaries at Invico Capital Corporation, breaks down the basics of secondary investments, including how the asset class has evolved since the firm entered the market in 2010, and how the team evaluates each opportunity.
What Are Private Equity Secondaries?
Secondary investments involve acquiring an existing investor’s position in a private market fund. Typically, private equity investments require investors to lock up capital for 10 years or more, with limited visibility into performance and little to no return of capital during the initial investment period. The secondary market changes that dynamic by providing access to more seasoned portfolios that offer greater transparency into underlying assets and a shorter duration to potential returns.
By acquiring positions partway through a fund’s lifecycle, investors gain exposure to portfolios where capital has already been deployed, and underlying investments are performing and typically generating cash flow. This can reduce uncertainty compared to primary investments, where capital is committed to a “blind pool” of future opportunities.
Secondary investing has historically been popular during periods of financial distress, such as during the global financial crisis in 2008, when investors in private funds sought liquidity. Today, the market has matured significantly. Investors now use secondaries as a proactive portfolio management tool, allowing them to rebalance exposures, reallocate capital, or exit existing GP relationships.
For buyers, the benefits are simple:
- The ability to acquire assets at a discount to net asset value
- Reduced J-curve impact, as investments are typically past their deployment phase
- Often greater transparency into underlying holdings
- A path to faster distributions when compared to traditional private equity
The Evolution of Private Market Secondaries
Invico began investing in secondaries in 2010, initially focusing on hedge funds due to relatively low competition. Over the past decade, secondaries have grown into a substantial and increasingly sophisticated asset class. As the secondaries market evolved, so has Invico’s strategy, with a pivot to invest primarily in private equity secondaries.
Over that same period, transaction volume has increased materially. In 2010, deal volume for private equity secondaries was approximately USD$20Bn; in 2024, deal volume was closer to USD$200Bn.1 This growth is supported by rising institutional demand, a broader range of deal types, including a surge in GP-led secondaries, and an expanding asset base, including private credit, infrastructure, and more.
Today, the secondaries market includes:
- LP-led transactions, where investors sell fund interests
- GP-led transactions, including continuation vehicles
- Tender offers and structured liquidity solutions
- Strip sales and other portfolio-level transactions
A Disciplined Approach to Secondaries
Invico’s approach to secondaries is highly selective and driven by a clear understanding of investor needs, particularly in prioritizing the generation of attractive risk-adjusted returns and near-term liquidity.
The team evaluates a large volume of opportunities, but only a small percentage meet the criteria required for inclusion in the portfolio. This disciplined filtering process is central to maintaining the strategy’s risk-return profile.
At a high level, the firm focuses on:
- Assets that offer clarity into underlying holdings and their valuation
- Opportunities where timing aligns with shorter-duration (3-5 year) investment horizons
This often means passing on otherwise attractive opportunities if the structure does not meet these requirements. For example, investments with extended timelines or longer-duration lockups may not align with the strategy’s objectives, even if the underlying assets are of high quality.
This disciplined approach ensures that each investment supports our philosophy of delivering greater transparency and a faster path to liquidity for investors.
Case Study: Unlocking Value in Secondaries
In a recent transaction, Invico’s Secondaries Team was contacted by a large GP regarding a smaller fund that they no longer wished to actively manage. The underlying assets included a significant proportion of public securities, providing immediate transparency and allowing for more accurate pricing.
Invico acquired the fund at a meaningful discount, applying a conservative valuation approach by giving greater weight to the more liquid, public holdings and assigning limited value to the less transparent assets.
The strategy for this investment was to offset the less visible holdings with a discount to the overall fund valuation, allowing returns to be driven primarily by the public assets, regardless of the performance of those with more limited oversight.
Over time, the public equity positions have performed strongly, significantly increasing in value and validating Invico’s initial investment thesis. The transaction demonstrates how secondaries can provide access to diversified portfolios at attractive entry points, while maintaining a clearer path to realization.
In Summary
Secondary investments are no longer a niche liquidity tool used to offload positions during periods of financial distress. They have evolved into a growing institutional asset class that continues to provide value to both buyers and sellers.
As the asset class continues to grow, it remains a valuable liquidity management tool for LPs and GPs seeking to actively manage and reposition their portfolios, while offering investors access to high-quality funds at discounted entry points and a more efficient path to return.
To learn more about Invico’s secondaries strategy and how it may fit within your portfolio, visit Invico Secondaries or connect with our investment sales team.
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