You’d be hard pressed to open up the WSJ, FT, Bloomberg or any other financial publication for that matter, and not find an article about secondaries. It's the hottest thing in financial engineering these days, surpassed only by continuation vehicles for continuation vehicles (CV^2).

This week we’ll go over what they are, why it feels like they’ve suddenly grown in popularity, and some commentary on what LPs should be aware of before diving into them.

What’s a secondary?

Let’s make sure we’re talking about the same secondaries, because there are startup secondaries, and those are different. In the context of startups, an existing shareholder (employee or early investor) sells their shares in a private company. The acquirer is buying directly into the company.

While startup secondaries have also gotten a lot of media coverage, what we’re talking about today is fund secondaries. The asset being sold isn’t a startup, but an LP’s stake in a closed-ended fund (like a PE, VC, or credit fund). The LP is transferring their claim on all of that fund’s underlying portfolio companies.

And there are two main kinds:-

LP-led: The LP initiates the sale. They might want to free up capital, manage risk, or rebalance exposure across vintages or asset classes.

GP-led: The GP starts the process, usually by moving one or more assets into a “continuation fund.” It gives existing LPs the option to sell or roll their interest, and brings in new investors who want to keep holding the company longer.

What purpose do they serve?

They provide liquidity to the seller, and the opportunity to enter into a fully subscribed fund (usually at a favorable price) to the acquirer. And LPs liquidate their positions for a variety of reasons. Rebalancing an oversubscribed portfolio; exiting a fund and reinvesting those funds in a more favorable opportunity; generating cash to meet obligations; amongst other reasons.

Why now?

A few reasons.

For one, exits have slowed down. IPO markets are quieter, M&A activity’s cooled, and funds that were supposed to distribute capital by now… haven’t. Allocators are feeling that drag on liquidity.

Pricing has improved. Discounts to NAV (net asset value) used to hover around 20–30%. Now they’re tightening as buyers get more comfortable with what they’re buying. Mature portfolios with known assets, real cash flows, and less guesswork. Add to that the fact that dedicated secondary funds are sitting on record amounts of dry powder, and you’ve got a market that’s getting deeper, faster.

Should LPs be wary?

Yes and no.

On the plus side, secondaries create flexibility in a world that used to have none. LPs can actively manage their portfolios instead of just waiting for distributions. Selling older vintages, trimming overexposure, or swapping into better-performing strategies all become possible.

But it’s not a free lunch. Pricing isn’t always transparent, and GP marks can lag reality. GP-led deals, in particular, come with conflicts of interest, since the same manager setting the price is often the one buying the asset. Some LPs worry these deals blur the line between liquidity management and performance smoothing.

There’s also an optics issue. Selling too aggressively can signal distress, even if it’s just portfolio housekeeping. And executing these transactions takes time, legal reviews, and plenty of paperwork.

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