Private markets have a structural problem that does not get enough attention. Capital flows in readily. Pension funds, endowments, and sovereign wealth funds have spent the last decade steadily increasing their private market allocations in search of the illiquidity premium. What they underestimated is how hard it is to get out.
The IPO market has not provided the relief valve it once did. Rising financing costs, wider bid-ask spreads, and macro uncertainty have made traditional exits harder to execute and easier to postpone. The result is a backlog that, by JPMorgan's estimate, now stands at roughly 30,000 portfolio companies globally, collectively representing around $3.7 trillion in unrealized value. Even in a strong year, public markets might absorb a hundred IPOs. The math on the rest does not work.
That gap is what the secondaries market exists to bridge, and right now it is doing so at record scale.
What secondaries actually are
The mechanics are straightforward. Rather than waiting for a fund or company to exit through an IPO or trade sale, an existing investor sells their stake to a new buyer through a negotiated transfer. Two structures dominate the market:
LP-led secondaries, where an existing limited partner sells their stake in a private asset to a new buyer. The GP consents but does not restructure the fund. GP-led secondaries, where the GP initiates a process to move one or more assets into a new vehicle, a continuation fund, enabling them to retain ownership of high-performing assets beyond the original fund term. LPs can choose to sell for cash or roll their exposure into the new vehicle.
GP-led transactions have been the faster-growing segment, and for good reason. They give GPs a mechanism to extend their hold on assets that aren't ready to exit at optimal valuations, while still offering liquidity to LPs who need it. For the right asset, it's a cleaner outcome than a forced sale into a weak market.
Why volumes are breaking records
Global transaction volumes for secondaries hit a record $226 billion in 2025, up 41% from 2024. Three forces are driving this simultaneously.
First, the sheer scale of private markets. AUM is projected to surpass $18 trillion by 2027, up from $10.8 trillion in 2022. A larger base of private assets mechanically generates more secondary flow as portfolios mature and investors rebalance.
Second, LP pressure. Endowments in the US are seeking more liquidity, and selling GP stakes previously invested in is one way to achieve that. Similarly, private equity firms need to realize investments valuations have gone up, and investors want their money back.
Third, and most structurally significant, the IPO bottleneck is not clearing. The pipeline of companies that would historically have gone public is instead aging on PE and VC balance sheets. Secondaries are absorbing what public markets cannot.
The risks that don't get enough airtime
The growth narrative is compelling, but secondaries are genuinely complex, and the risks are often underappreciated by newer participants in the space.
Valuation is the central challenge. Key company information including financial statements is generally not publicly disclosed in private markets, and deals are often priced based on historical data that can lag market conditions. Buying at a discount to NAV sounds attractive until you realize that the NAV itself may be stale, and that the discount reflects information asymmetry as much as market dislocation.
A discount doesn't mean the company is cheap or doesn't have intrinsic value. There's a need to differentiate between selling at a discount versus selling at a loss. That distinction requires genuine underwriting capability, not just access to deal flow.
Investor protection is another concern that tends to get glossed over in the excitement around volume growth. There's a need for more regulation, especially as more retail investors get into this space. Private markets and secondaries are long-term investments, and there's a huge need to provide not just regulation, but also education. The democratisation of private markets is a real trend, but it is moving faster than the regulatory and educational infrastructure around it.
My read
Secondaries are one of the more interesting structural stories in private markets right now, precisely because the demand for the product is not discretionary. It is being generated by the architecture of the private markets themselves: long fund lives, illiquid assets, LP commitments that outlast their holders' liquidity needs. As long as the IPO market remains constrained and private market AUM keeps growing, secondary volumes will follow.
The more interesting question for investors is where in the capital structure the opportunity is best priced. LP-led transactions have become increasingly competitive as more capital has entered the space, compressing discounts. GP-led continuation vehicles remain more nuanced, the quality of the underlying assets varies enormously, and the GP's incentive to retain an asset is not always aligned with the LP's incentive to exit. Doing this well requires deep fundamental underwriting, not just deal execution.
The market is growing fast enough that average returns will likely compress. The dispersion between managers who can genuinely assess private company value and those riding the structural tailwind will widen. That is where the actual alpha in secondaries will be found over the next cycle.
