Why does the secondaries market exist?
Secondary markets are a natural consequence of large pools of capital. As investors’ situations and strategies change over time, the need for early liquidity can arise. Active secondary markets have emerged in various areas like commercial loans, mortgages and various types of insurance. Besides new stocks and share issuance, all the world’s stock exchanges are secondary markets.
Given private equity’s long-term and illiquid nature, the emergence of a secondary market was not just necessary but inevitable.
While increased liquidity is a result of secondary sales, it is not the sole or even the principal, motivation. Secondary sales are often motivated by investors’ increasingly active approach to managing their private equity portfolios.
This trend is set to intensify, as Limited Partners re-shape their holdings in response to new economic realities focusing more on a core group of preferred managers.
Is boosting liquidity the only reason to sell assets as secondaries?
While increased liquidity is a result of secondary sales, it is not the sole or even the principal, motivation. Secondary sales are often motivated by investors’ increasingly active approach to managing their private equity portfolios.
This trend is set to intensify, as Limited Partners re-shape their holdings in response to new economic realities focusing more on a core group of preferred managers.