Produced in partnership with Franklin Templeton.
The private equity (PE) secondaries market has expanded rapidly in recent years, driven by historically high PE inventory, rising sell‑side liquidity needs and strong buy‑side demand from investors seeking attractive risk‑adjusted returns. Product innovation and growing General Partner led (GP‑led) activity have also increased turnover and broadened access for institutional and wholesale investors.
In Australia, eligible high‑net‑worth and sophisticated retail investors can now access the PE secondaries market through semi-liquid, evergreen structures offering regular subscriptions and capped redemptions to balance accessibility with private equity’s illiquidity.
Primary private equity funds typically follow a J‑curve: negative cash flow while capital is deployed, then rising cumulative returns as exits occur. Secondaries change that cash‑flow profile because buyers acquire interests in funds later in their lifecycle — often nearer the harvest stage and sometimes at a discount. That positioning tends to produce earlier and more frequent distributions and materially dampens the early negative drag associated with primary commitments.
Buying later gives secondary investors substantially more information about underlying holdings, which reduces blind‑pool risk and improves price discovery: buyers can review portfolio company performance, re‑underwrite assets in the context of current macro conditions and selectively price opportunities. “When you buy into a mature fund, you can see which assets are working and which aren’t, so you’re underwriting known assets rather than betting on a manager’s future choices,” says John Lee, partner at Lexington Partners. At the same time, secondary portfolios are typically broadly diversified by sponsor, fund, strategy, geography, industry, company and vintage year, which helps reduce idiosyncratic volatility, and spreads manager and deal‑level risk across many positions.
Market structure amplifies these dynamics. Primary PE fundraising has grown strongly over the last decade, producing large vintage cohorts that will, as they mature, feed secondary turnover. Since 2011, the secondary industry has expanded at a compounded rate of roughly 13 per cent per year, while primary fundraising compounded at about 10 per cent annually through 2023. Yet buyer capital has not expanded at the same pace: available secondary dry powder relative to one year of expected deal flow was around 1.3x in 2024, indicating limited coverage and a persistent supply‑demand imbalance. That imbalance can create advantages for well‑capitalised secondary buyers able to act quickly on attractively priced opportunities.
“The secondary strategy can provide investors with earlier cash returns, reduced blind‑pool risk and meaningful diversification, just to name a few of the benefits, with the aim of delivering attractive risk-adjusted returns to investors,” Lee says. “However, it is imperative for investors to be diligent in manager selection, and pay close attention to the specific strategy of the manager, as well as the terms of the vehicle offered.”
