Behind the sudden boom, experts say concerns grow over fees and NAV squeezing
Private markets have drawn fresh attention as investors look for ways to move beyond public stocks and bonds. One corner of that world that is getting more notice is the secondaries market.
According to data from PitchBook, global secondaries transaction volume reached a record $226 billion in 2025, a 41 per cent jump from 2024.
As Tori Buffery explains, the roots of that growth trace back to the financial crisis, when collapsing public markets left institutional investors over-allocated to private equity with no easy way out. Some couldn't meet capital calls while others needed to rebalance but had no liquid market to do it in.
"Investors who were over-allocated to private equity had no exit," said Buffery, principal at Neuberger. "If you are in a private equity fund, you can’t just sell. It's not like you go on the stock market and sell. The only way is the secondaries market," she said.
When it comes to the secondaries market, there are two main avenues.
In an LP-led secondary, an existing limited partner - or LP - sells its stake to another buyer. The general partner - or GP - typically approves the transfer, but the fund itself is not reorganized.
In a GP-led secondary, the GP drives the process by transferring one or more assets into a new vehicle, often called a continuation fund. That structure allows the GP to keep holding assets, often its stronger performers, beyond the life of the original fund. Existing LPs can then decide whether to cash out or roll their investment into the new vehicle.
Put simply, a secondary transaction happens when an existing investor sells its interest in a private fund or company to another investor, instead of waiting for the underlying asset to be sold or taken public.
The current environment has only accelerated things. The IPO market is constrained, leverage remains expensive, and geopolitical uncertainty persists. Private equity firms are sitting on assets, and investors have now gone close to three years with record-low distributions.
“Pricing is good, so investors can actually use the secondaries market to craft the private equity portfolio. Secondaries didn't always used to be the cool thing back in 2009 but I think people are recognizing it's a good asset class," she added.
According to Buffery, the secondaries market has gained momentum as investors have become more familiar with the asset class, with GP-led deals playing a major role in that expansion.
Ben Keen, partner in securities and capital markets at Borden Ladner Gervais LLP, agrees, noting how both LPs and GPs now understand what to expect from these transactions, and that familiarity has tightened pricing. He emphasized the fact how discounts that once sat around 30 per cent have since narrowed sharply.
"We're seeing some examples where secondary transactions are happening at NAV (net asset value) or par value or within kind of 10 per cent of that," he said, also pointing to pricing as a key shift. "That discount has really come down and we're seeing some examples where secondary transactions are happening at NAV or par value or within kind of 10 per cent of that," he said.
Keen also flags that Canada's largest pensions have become repeat players – both buyers and sellers – approaching secondaries not out of desperation but as a core part of portfolio construction.
"The big Canadian pensions for the most part have hired secondaries teams whose primary focus is around secondaries transactions," he said, adding institutional adoption has changed the character of the market.
According to Dario Di Napoli, SVP of private markets at Franklin Templeton, secondaries fit the “core role” because they offer broad diversification across company sizes, subsectors, and vintage years, which can help smooth returns and reduce concentration risk.
He frames the strategy as a way to get broad-based private equity exposure with steadier risk-adjusted performance than more specialized allocations. He also describes secondaries as the ballast of a private equity portfolio.
“You want to build around a core and secondaries can be that core because it's broadly diversified. You can get your mid to high teens IRRs from the secondary market,” noted Di Napoli.
He argues that current market conditions are especially favourable for buyers. Large institutional sellers, including pensions, are bringing sizeable, high-quality portfolios to market as they rebalance their private equity exposures. That gives experienced secondary buyers more room to be selective, focusing on stronger managers, better vintages, and the assets they want rather than taking an entire mixed portfolio.
The main risk he flags is the same issue hanging over private equity more broadly, which is slow distributions.
“We still need to get distributions from those funds that we're now investing in. So we're monitoring deal activity and potential slowdowns in distribution. But if you're a real long-term investor here, then we think that the distribution environment will ultimately normalize in the years ahead. But shorter term you may continue to see that slowdown in distributions impact secondary fund investors as well.”
Yet Buffery argues that the market may not be as well funded as the headlines suggest. Despite all the attention on capital raised, the amount of dry powder relative to annual transaction volume is unusually low. By her math, there is only about a year and a half of undeployed capital available against a market that runs on multi-year fund cycles. Her point is that demand for liquidity and the volume of potential deals are so large that, viewed in that context, the secondaries market is actually undercapitalized.
Then there is the controversial practice known as NAV squeezing, where a secondary fund buys a position in a fund at a discount, for example, paying $9 million for something the GP marks at $10 million. Under accounting rules, the buyer can use NAV as a practical expedient and immediately mark the position up to $10 million.
Leyla Kunimoto, founder of Accredited Investor Insights, has personally called on regulators to examine a specific corner of GAAP accounting – the use of NAV as a practical expedient to value secondary fund assets. The mechanics create a problematic incentive loop.
For example, a secondary fund manager buys LP stakes at a typical discount of 15 to 20 per cent, but under accounting rules can immediately mark those assets up to the GP's reported NAV. That gap between purchase price and reported value shows up as an instant unrealized gain. In evergreen secondary funds, the problem gets worse, she said, noting the accounting treatment is defensible under existing rules.
"A lot of fund managers, a lot of fund prospectuses allow the fee structure to be structured in a way where the fund manager gets paid on those unrealized marks," she said.
She believes the most pressing question in secondaries right now is whether the valuations on underlying assets are accurate and defensible. The pitch from secondary funds is that companies held for five or more years are close to an exit, but the reality is that many of those holdings have lingered far longer than expected.
Moreover, the incentive problem compounds that risk. Because secondary fund managers can use NAV as a practical expedient, “it creates a funky incentive where maybe you're incentivized a little bit more to buy lesser quality assets just so that you can buy them at a higher discount," she said.
When asked what worried her, Buffery has heard concerns about exits both coming back too fast or exits not coming back at all. For Keen, the outlook for secondaries is closely tied to what happens in the broader exit environment.
"If we start seeing a very bullish public IPO market, increased activity on the M&A side, I think we could see decreased secondaries activity," he said, noting that he also doesn’t see the market disappearing anytime soon. "It really has reached a point that it is something that people are thinking about from the beginning."
Kunimoto underscored how she approaches secondaries with caution and wants stronger proof that the newer crop of secondary funds can actually deliver exits at the values they are carrying on paper. Notably, she believes too many of these funds are still relying heavily on unrealized gains, which makes it harder to judge whether the underlying investment case is holding up in practice.
What she wants to see is more realized performance inside secondary funds to confirm that managers can sell assets at or above their marks.
She also emphasized how investors need to pay close attention to fee structures.
“Fees create incentives and there's a wide variety of fee structures and funds that we're seeing," she said. "Some of them are more aligned with investors than others."
