Secondaries: Handling a double-edged sword

Secondary market transactions have surged: total volume reached nearly US$240 billion ($343bn) in 2025 across all private market asset classes and activity has continued strongly in 2026. The 2025 number represents a staggering 50% increase versus 2024, which was itself a record year. Moreover, the split between limted partner-led (LP) and general partner-led (GP) transactions continues to hover around the 50:50 mark, as has been the case since 2021: the pre-pandemic days when LP-led deals dominated the sector have long gone.

This trend is not just evident in private equity: infrastructure, private credit and even real estate secondary transaction volumes are all at record levels, although these markets are much more nascent. The secondary market in infrastructure only emerged around 2010 and has expanded dramatically in the 2020s: transaction volume in this sector almost doubled from US$12 billion ($17bn) in 2023 to between US$20 billion ($29bn) and US$24 billion ($34bn) in 2025. Meanwhile, in private debt, secondary activity more than doubled from US$6 billion ($9bn) in 2023 to over US$15 billion ($21bn) in 2025 and GP-led transactions outstripped LP-led secondaries for the first time.

Recent fundraising in this sector has also been exceptionally strong, even in a climate of softer capital raising for private market funds overall. Data shows that upwards of US$140 billion ($200bn) was raised by closed-ended secondaries funds in 2025, versus less than US$100 billion ($143bn) in 2024 and 2023. The pitch is a compelling one: rapid deployment, vintage diversification, reduction of the conventional J-curve, shorter holding periods, avoidance of 'blind pool risk' and (in the case of continuation funds) lower fees. Discounts can also be a relevant draw, although this varies heavily depending on the asset class/sector and market conditions. In addition, the prospect of faster distributions may be particularly appealing in today's environment and we have seen a number of secondaries funds explicitly emphasising this characteristic.

Yet private market secondaries in 2026 constitute a double-edged sword. For example, growing secondary markets can be a feature of the healthy maturation and expansion of illiquid asset classes; they can also be symptomatic of market dysfunction. There is certainly huge opportunity; there is also a huge need for vigilance.

Continuation and the rise of synthetic exits

At the heart of this secondaries surge lies a tension: the interplay between synthetic exits (GP-led continuation) and cFonventional exits from the underlying portfolio holdings. While the former have surged, the latter continue to stagnate, although the asset classes do remain awash with dry powder targeting primary deal-flow. Even in private credit sectors, where no 'exit' is theoretically required given the self-liquidating nature of the assets, the same dynamic is broadly visible: average loan duration in direct lending has stretched from two-to-three years to four-to-five years (a significant increase, albeit still generally lower than the legal tenor of the loans) and 'amend-and-extend' activity has increased.

A temporary, non-structural slowdown in exit activity is a problem that private market funds are perfectly equipped to handle. Over a prolonged period, however, this becomes extremely problematic, causing weak distributions of capital to LPs (evident across private equity, private debt and infrastructure over the past three years) and difficulty in winding up funds in a conventional manner. Synthetic exits, in the form of GP-led continuation, provide an alternative release valve: these transactions generate LP liquidity, if they choose to cash out, and can crystallise performance fees for the GP - though these are often rolled into the new transaction - without requiring the GP itself to exit the relevant holdings.

In other words, despite an environment of high potential liquidity, primary fund managers are increasingly leaning on secondaries to obtain actual liquidity for themselves and their LPs. Other capital-generating levers are also being pulled by GPs, including selling a 'GP Stake' to a specialist private equity investor and/or seeking to borrow in the form of NAV financing. Secondary investors are not simply buying diversified multi-vintage exposure to an asset class: they are also, to some extent, deploying into a classic liquidity squeeze. This dynamic can heighten the opportunity - and the risk.

Investors must demand discipline

Not all secondary opportunities will be savvy investments and not all secondary strategies will be 'winners' in this market. High conviction is essential, whether seeking to deploy to a diversified fund or participate in a particular GP's continuation vehicle. Allocators should consider: is there too much reliance on a broad near- or medium-term improvement in the overall exit environment (driven, perhaps, by interest rate cuts), so that a rising tide can lift all boats, or will clear asset-specific and industry-specific developments deliver appropriate exits for the underlying book? Are deal terms suitably LP-friendly or skewed too far in favour of the GP? How will conflicts of interest be assessed and addressed in a market that (on the GP-led side) is intrinsically conflicted? Assumptions and alignment of interest should be interrogated with care.