With Slower Private Equity Exits, Secondaries Transactions Tick Up

Art by James Yang

It is no secret that private equity firms are holding onto their portfolio companies for longer. Vintages are getting older, dry powder is stockpiling, and, as a result, an asset class known for illiquidity is becoming more and more liquid.

Transactions on the secondary market, meanwhile, have never been higher, reaching more than $150 billion in 2024, according to data from Preqin.

“We think that backlog is bigger in value count and as a share of total portfolio companies than at any point in the last two decades, and wide swaths of the economy are waiting to get sold,” says Alexander Edlich, a senior partner in consultancy McKinsey & Co.

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McKinsey sizes that backlog at roughly $162 billion, as of 2024, increasing nearly 45% from 2023.

“LPs are tapping into alternative capital sources and leveraging innovative fund structures to address liquidity needs,” Edlich says, “You have a lot of LPs that are waiting for their distribution, and you’ve got a lot of GPs who are waiting to crystalize their investments that they’ve held. … Some LPs can’t wait any longer.”

While some investors expected exits and M&A activity to pick up in 2025, they still seem to be on the sidelines, possibly leading to additional volume available on the secondaries market.

“A lot of people came in thinking 2025 was going to be a strong year, [but we are] hearing a lot of people holding on processes, given financial turbulence, and certainly the uptick in interest rates didn’t help,” says Robert Lytle, a senior managing director at management consulting firm Stax.

Secondary-Market Pricing

Secondaries prices, as a percentage of net asset value, 2024 than previous highs in 2017 and 2021, but they are trending upwards from a low in 2022. For LPs, pricing is getting better, according to a report from Commonfund.

Across an average of all alternative asset classes on the secondary market, transactions were priced at 89% of NAV at the end of 2024. For traditional buyouts, that figure was 94%, up from as low as about 85% in 2022, Commonfund’s data showed.

Venture and growth equity investments are still being priced at about 75% of net asset value. Real estate pricing on the secondary market has barely recovered at all from a 2022 bottom.

Secondary Pricing as a Percentage of NAV (by asset class)

Source: Commonfund

Martin Gross, president and founder of Sandalwood Securities, says LPs should actively engage with their managers if distributions fall short.

“LPs should not be afraid to question their managers if distributions are not meeting expectations,” Gross says. “If they are going to tap the secondaries markets to access liquidity, [LPs] should make sure that terms are very clear. Now is certainly one of those phases whe[n] solid work around due diligence, of both managers and fund structures, can play a major role in securing better outcomes.”

New Secondaries Markets Emerge

Increasingly, those outcomes are being achieved through secondary transactions, even without a significant formal structure to support them.

“While we believe that we are still years away from an efficient secondary market brokered through an exchange, the continuously increasing volume and dedicated capital flowing into secondaries is allowing for better portfolio management and greater access to liquidity,” according to the Commonfund report. “Private equity is no longer a buy and hold strategy.”

Some asset owners are turning to emerging secondary market exchanges. Accredited and institutional investors can buy shares of large, primarily venture capital-backed companies on , an online marketplace for trading private shares and secondaries, which is seeing increased interest and use from asset owners, says Rodolfo Sanchez, its director of data sales.

So much so that the company started its own fund, just for secondaries transactions.

“A lot of these companies are staying private longer, they’re just not going to go public—some of them will never go public,” Sanchez says.

How Supers Evaluate Holdings

Matt Olsen, director of manager research ratings at Morningstar Australasia, which is starting to expand its evaluation of superannuation funds, says Australian accounting standards allow several approaches to valuation, including looking at identical or comparable assets, replacement costs, present value of cash flows and other methods. What matters is the process. “It’s important that people apply consistent approaches and that they’re independently verified,” he says.

Josef Pilger, an independent global pension and retirement expert, says Australian superannuation funds employ classic valuation methods any asset owner would use. He concurs with Olsen that it’s the consistency of valuation practices when it comes to unlisted assets for many asset owners, not just supers.

Because private markets are still relatively immature, compared to public markets, how various entities value the same assets will likely be different because there isn’t a standardization about what something is worth, even in the same organization, he says.

Australian superannuation funds have invested in private markets for years, but up until about a decade ago, it was mostly through external managers, Pilger says. It has been only recently that they have started to build direct private market capabilities in-house.

The issue for asset owners overall comes down to what he calls investment governance and valuation governance maturity, that people who estimate valuation have the sophistication and the experience to know where to focus, have the right processes in place, the correct amount of oversight, and other necessary criteria.

“It’s securing broader outcome resilience. You have enough oversight and scrutiny, but also insights into (an asset) so that you can actually be comfortable that the investment outcomes that you’re communicating are actually sustainable,” he says.

Greater Availability of Data

Ashby Monk, executive director at the Stanford Research Initiative on Long Term Investing, says Australia’s superannuation funds’ investment in novel technologies and processes allow them to do more sophisticated valuations. The funds use artificial intelligence technology to extract valuation data from PDFs sent to them by general partners, collecting and storing that information in central databases to do valuations at scale. The question is how much information sharing they can negotiate with external managers.

“I think they are the world leaders in private market valuation, from an asset owner perspective, they are going to drag the world forward,” he says. “I think APRA is setting a pretty high standard, and they are demanding a lot from their superannuation funds. Obviously, that’s painful if you’re in the superannuation seat, but given the request APRA is making, I see enormous progress happening there, and the hope I have is that progress will come to the rest of the world.”

How often and how quickly funds should revalue their unlisted assets depends on a few factors, such as if they have direct ownership of an asset or if they get information from external managers. Pilger says if a super relies on outside organizations for data the super must wait until the manager squares its books, which automatically means a lag. Quarterly valuations are useful, but being able to do internal valuations can add an extra level of sophistication, Pilger says, especially in volatile markets.

Olsen says Morningstar would like to see the superannuation funds address the same concerns as APRA. It would prefer quarterly valuations, but the key principle for supers is the need for a fair-value reporting at the end of a reporting period. If there is not, the super needs to explain why.

Olsen and Monk say the regulator’s valuation concerns come down to fair treatment of beneficiaries who may be entering or exiting the fund and not being disadvantaged by the timing of the exposure to a particular private investment. Monk says unlike purely defined-benefit pension funds, many superannuation funds are only defined-contribution plans, so members can leave at any time to join another.

“The overarching theme here is around the fair treatment of superannuation members…. You need to be able to strike a valuation as people move from one superannuation fund to the other, giving them equitable treatment across funds,” Monk says.

The question about fairness and valuation are not without precedent. Last year the HESTA super fund paid two cohorts of members who were impacted by the fund’s downward valuation decisions in March 2020, at the beginning of the Covid-19 pandemic. APRA was concerned that the decision-making processes surrounding the original valuations was not adequate nor fair.

CIO magazine reached out to several Australian superannuation funds for comment, but all either declined or did not respond to questions by deadline.

Mary Delahunty, CEO of the Association of Superannuation Funds of Australia, a policy, research and advocacy organization for the superannuation industry, said in an emailed statement to CIO regarding APRA’s review, that superannuation funds operate consistently within the regulator’s expectations.

She said funds surveyed generally adopted a quarterly valuation cycle, with some larger funds carrying out more frequent independent valuations of asset classes with a higher valuation risk, and that superannuation funds generally use a governance committee or group for valuation oversight. For externally managed assets, funds often placed high reliance on the investment manager’s valuation policies and processes, especially for investments accessed through investment platforms.

“APRA has noted that, as the proportion of superannuation funds’ assets invested in unlisted assets such as property, infrastructure, credit and equity continues to increase, addressing risks related to valuation governance and liquidity risk management is a critical issue for the industry and a priority for APRA,” Delahunty said.

Regulation Varies by Jurisdiction

For much of the of the world, including the U.S., regulation of retirement plans is rules-based, Pilger says. Rules-based oversight has advantages in the level of prescription and regulatory details but has limitations. “The regulation is more ‘help me to keep me out of trouble,’ not necessarily ‘help me to make my business better,’” he says, also noting that few asset owners in the U.S. directly invest in unlisted assets.

Pilger highly rates regulators in Australia, the Netherlands, the U.K. and Singapore for their principles-based approach. “It’s far, far, far more flexible and far, far, far more accommodating,” he says, adding, “They are highly sophisticated, very much focused on thinking a little bit more holistically.”

In Canada, he says rule-following is less about the regulator’s approach as it is the sophisticated governance framework asset owners have built. “They’re highly driven by trying to do the right thing, to drive the right outcomes,” he says.

Pilger says when it comes to the regulatory landscape that’s best for asset owners, the principles-based approach shows itself with how countries invest in unlisted assets.

“I think it correlates very strongly to the level of sophistication when it comes to directly investing in private markets,” Pilger says.