The Secondary Market Boom: How Smart Money Is Buying Private Equity at a Discount

For accredited investors accessing private markets through SPVs, secondaries offer something rare: the ability to buy into mature portfolios at documented discounts, skip the J-curve entirely, and potentially receive distributions faster than primary fund investors ever will.

Why the Secondary Market Matters Now

Consider the mathematics of the exit backlog. Private equity firms currently hold over 30,000 portfolio companies according to Bain’s Global Private Equity Report. Nearly half were acquired since 2020. At recent exit rates, clearing this inventory would take approximately 8.5 years. The median holding period for exited deals pushed to 7 years in 2023, the longest on record.

Meanwhile, the DPI crisis intensifies. The global DPI average for funds raised between 2019 and 2022 sits at a mere 0.12x, according to Goldman Sachs. Limited partners who committed capital during the boom years have seen almost nothing returned. Institutional investors managing billions in pension obligations cannot wait another decade for theoretical returns to materialize.

This creates an unusual opportunity structure. Sellers need liquidity desperately. Buyers with available capital and proper access can acquire diversified private equity exposure at meaningful discounts while inheriting portfolios already through the value-creation phase.

Understanding Secondary Transaction Types

The secondary market divides into two primary channels, each offering distinct risk-return profiles and access points for individual accredited investors.

LP-Led Transactions

When limited partners need to exit their fund positions before natural liquidation, they sell to secondary buyers. LP-led transactions represented 54% of 2024 volume at $87 billion. Buyers acquire diversified exposure across multiple portfolio companies within a fund, typically at discounts ranging from 6% to 25% of net asset value depending on asset class and vintage.

Pricing has tightened considerably as capital floods into the space. Buyout portfolios traded at 94% of NAV in 2024, up 300 basis points year-over-year according to BlackRock’s Secondary Market Outlook. Venture portfolios improved to 75% of NAV, a 700-basis-point jump reflecting renewed confidence in tech valuations. Credit portfolios saw the most dramatic recovery, reaching 91% of NAV after a 1,400-basis-point improvement.

GP-Led Transactions

General partners increasingly use continuation vehicles to retain their best-performing assets while providing liquidity to existing LPs. GP-led volume reached $75 billion in 2024 and expanded another 68% in the first half of 2025. These transactions allow sponsors to extend ownership of trophy assets, often resetting economics and bringing in fresh capital.

Single-asset continuation vehicles dominate the GP-led market, with 87% pricing at or above 90% of NAV. Buyers targeting these structures gain concentrated exposure to assets the GP considers worth keeping, a powerful signal of conviction. Technology, healthcare, and business services lead sector allocation within single-asset deals.

The Discount Arbitrage Opportunity

Discounts in private equity secondaries represent compensation for assuming illiquidity risk and providing liquidity services to sellers under pressure. The specific discount reflects multiple factors including asset quality, vintage, sector, and seller motivation.

Current pricing across asset classes reveals where value persists. Buyout portfolios command premium pricing near 94% of NAV because they represent the most liquid, best-understood segment. Venture portfolios at 75-78% of NAV offer wider discounts reflecting both higher underlying volatility and the sector’s prolonged exit drought.

Real estate secondaries provide the steepest discounts at approximately 71% of NAV, as elevated interest rates and refinancing challenges continue pressuring property valuations. Infrastructure sits at mid-single-digit discounts, benefiting from stable cash flows and energy transition tailwinds.

For family offices building AI unicorn exposure, venture secondaries present a compelling entry point. The 22-25% average discount to reported NAV effectively provides downside protection against potential future markdowns while maintaining full upside participation.

How SPVs Unlock Secondary Access

Individual accredited investors cannot typically participate directly in large secondary transactions. The minimum check sizes for institutional deals run into tens of millions. SPV structures solve this access problem by aggregating capital from multiple investors into single vehicles capable of meeting allocation thresholds.

The mechanics work straightforwardly. A secondary specialist or placement agent identifies an attractive transaction. They structure an SPV to invest alongside institutional buyers. Individual investors commit capital to the SPV, which then holds the underlying secondary interest. The SPV appears as a single line item on the cap table while providing pro-rata economics to all participants.

Median SPV sizes have increased to $22.6 million as of 2023, up from $15.2 million in 2019 according to Carta data. Fee structures have evolved favorably for investors. Only 52% of SPVs formed in 2023 charged management fees, down from 69% historically. Among those charging fees, the median sits at 1.9-2.0% with typical carry arrangements of 15-20% on profits.

The SPV versus traditional fund comparison becomes particularly relevant in secondaries. SPVs targeting specific secondary opportunities offer transparency into exactly what you own, a luxury unavailable in blind pool structures.

Performance Characteristics of Secondary Strategies

Secondary funds exhibit distinct return profiles compared to primary private equity commitments. Understanding these differences helps investors set appropriate expectations and allocation sizes.

According to Cambridge Associates research, secondary funds outperformed global public equities in 18 of 20 trailing three-year periods between 2005 and 2024. Over trailing ten-year periods representing full market cycles, secondaries outperformed in every single observation. During major market drawdowns since 1999, secondaries consistently delivered better downside protection than both primary PE funds and public equities.

The structural advantages driving this performance include diversification across multiple managers, vintages, and strategies within a single investment. Secondary buyers can underwrite known portfolios rather than betting on blind pools. Entry at discount provides immediate margin of safety. Mature assets generate faster distributions, reducing capital at risk.

However, secondary funds historically produce lower total value creation compared to top-quartile primary funds over full holding periods. Callan research shows a 100% primary allocation generated 1.65x TVPI over 20 years versus 1.35x for an all-secondary portfolio. The trade-off favors secondaries for shorter investment horizons, lower volatility preferences, or portfolio programs in their early years requiring quick distributions.

The Retail Capital Revolution

Evergreen vehicles represent the most significant structural change to secondary markets in a decade. These perpetual funds accept ongoing subscriptions and provide periodic liquidity, making private equity accessible to investors previously excluded by traditional fund structures.

Assets in retail-oriented secondary vehicles now exceed $350 billion in combined deal flow. Franklin Templeton’s Lexington partnership, StepStone’s private markets funds, and multiple ’40 Act vehicles compete aggressively for secondary deal flow. This capital base has real pricing power. Unlike institutional buyers demanding steep discounts, evergreen funds often pay closer to NAV to maintain deployment velocity.

The SEC’s May 2025 elimination of the informal 15% cap on closed-end fund investments in private funds accelerates this democratization. Retail investors can now access PE through registered vehicles with 1940 Act protections, dramatically expanding the potential buyer base for secondary transactions.

For investors following the SEC’s 2025 private market regulatory changes, this shift creates both opportunity and competition. More capital chasing secondary deals may compress discounts further, making early positioning increasingly valuable.

Strategic Implementation for Individual Investors

Building secondary exposure within a broader private markets allocation requires thoughtful construction. Consider these implementation principles.

Start with diversified secondary fund exposure before pursuing direct SPV opportunities. Established secondary managers like Ardian, Lexington Partners, or Strategic Partners maintain deep relationships enabling access to proprietary deal flow. Their portfolios span thousands of underlying companies across dozens of funds, providing instant diversification.

Layer in targeted SPV participations for specific opportunities matching your conviction areas. AI-focused venture secondaries, Hamptons real estate vehicles, or GP-led continuation funds in sectors you understand can add concentrated alpha around a diversified core. Typical allocation might split 70% to diversified secondary funds and 30% to targeted SPV opportunities.

Size positions appropriately for illiquidity. While secondaries offer faster distributions than primary funds, they remain fundamentally illiquid investments. Plan for five to seven year holding periods even in secondary positions. Ensure you can absorb complete loss of any single SPV allocation without material lifestyle impact.

Due Diligence Framework for Secondary SPVs

Evaluating secondary opportunities through SPVs requires layered analysis across the sponsor, the underlying assets, and the transaction structure.

Sponsor Assessment

The GP or secondary specialist structuring the SPV determines access quality and execution capability. Examine their track record in secondaries specifically, not just general private equity experience. Verify their relationships with major secondary buyers enable favorable syndication. Understand their underwriting process for valuation verification.

Asset Quality Evaluation

For LP-led secondaries, review the underlying fund portfolio composition, vintage diversification, and manager quality distribution. For GP-led continuation vehicles, analyze the specific assets being rolled into the new structure. Request third-party valuation opinions where available. Cross-reference sponsor marks against comparable public company multiples.

Transaction Economics

Understand the total cost including SPV formation fees, management fees, carried interest, and any placement agent compensation. Calculate the effective entry discount after all fees. Model potential distribution timing based on underlying portfolio maturity. Verify the sponsor’s alignment through co-investment alongside LP capital.

Risk Factors in Secondary Investing

Despite structural advantages, secondary investments carry meaningful risks requiring clear-eyed assessment.

Valuation opacity remains a central concern. Private equity NAVs reflect GP estimates, not market-clearing prices. Secondary discounts theoretically compensate for this uncertainty, but wide variations in GP marking practices mean actual discounts to intrinsic value differ substantially from stated discounts to NAV.

Liquidity is limited. Unlike public markets where positions can be liquidated within days, secondary investments may take months or years to fully distribute. Even the growing secondary-of-secondary market for re-trading positions involves significant transaction costs and execution risk.

Concentration risk varies dramatically by structure. A diversified secondary fund might hold exposure to 500+ underlying companies. A single-asset continuation vehicle SPV concentrates all capital in one company’s outcome. Match structure selection to your risk tolerance and portfolio context.

Manager selection drives dispersion. The spread between top-quartile and bottom-quartile secondary funds remains material. Choosing established managers with consistent track records reduces but does not eliminate underperformance risk.

The Road Ahead for Secondary Markets

Industry projections suggest secondary transaction volume will exceed $200 billion in 2025 and could reach $300 billion by 2030. Research from PwC’s Private Equity Practice suggests approximately 4,000 to 6,500 PE exits have been delayed over the past two years, creating sustained supply for secondary buyers. The structural drivers supporting this growth show no signs of reversing.

Private equity AUM continues expanding while traditional exit routes remain constrained. LP liquidity needs intensify as capital calls outpace distributions. GP-led solutions gain acceptance as standard portfolio management tools rather than distress signals. Retail capital inflows provide fresh demand supporting pricing.

For individual accredited investors, the secondary market offers something rare in private markets: a way to buy exposure with partial visibility into what you are getting, at prices reflecting meaningful discounts to reported values, with potential for accelerated distributions.

The math favors those who understand the game. While others wait years for paper gains to turn into actual returns, secondary buyers can position to receive cash while primary investors are still waiting for their first distribution.

As one family office principal put it: buying secondaries is like entering a movie ninety minutes in. You missed the slow opening, but you arrive just in time for the action.