Solving the Secondaries Undercapitalization Problem:
How to Drive Growth in a Market Constrained by Capital Formation
October 2025
The secondaries industry is widely believed to be one of the most undercapitalized corners of private markets. Dry powder sat at $173.5bn in December 2024, barely exceeding the $164bn total transaction value recorded for the previous 12 months1.
Secondaries fundraising has remained buoyant, of course, particularly in contrast to other private markets strategies. A very respectable $97.5bn was raised last year, on the back of the $118.9bn raised in 20232. Activity is ratcheting up yet further still. Between January and June, secondaries raised a record $80.84bn3, buoyed by a €30bn fund from Ardian.
Secondaries Fundraising,
Year-On-Year ($Bn)
Hover to find out more
Source: Secondaries Investor
The secondaries industry is widely believed to be one of the most undercapitalized corners of private markets. Dry powder sat at $173.5bn in December 2024, barely exceeding the $164bn total transaction value recorded for the previous 12 months1.
Secondaries fundraising has remained buoyant, of course, particularly in contrast to other private markets strategies. A very respectable $97.5bn was raised last year, on the back of the $118.9bn raised in 20232. Activity is ratcheting up yet further still. Between January and June, secondaries raised a record $80.84bn3, buoyed by a €30bn fund from Ardian.
Secondaries Fundraising,
Year-On-Year ($Bn)
Click to find out more
Source: Secondaries Investor
Headlines proclaiming record years for secondaries fundraising only tell part of the story, however, as demand continues to outstrip supply. There is currently around $3.2tn of unrealized NAV tied up in 29,000 unsold private equity-backed companies, and so the need for interim liquidity solutions amongst both LPs and GPs is growing4.
There are more deals coming to market than there is capacity to consummate. Capital formation is a crucial inhibitor to the secondaries industry’s continued growth.
Headlines proclaiming record years for secondaries fundraising only tell part of the story, however, as demand continues to outstrip supply. There is currently around $3.2tn of unrealized NAV tied up in 29,000 unsold private equity-backed companies, and so the need for interim liquidity solutions amongst both LPs and GPs is growing4.
There are more deals coming to market than there is capacity to consummate. Capital formation is a crucial inhibitor to the secondaries industry’s continued growth.
Retailization
Part of the problem is that barriers to entry in the secondaries market are high – to the benefit of incumbents, of course. This is a strategy that requires vast amounts of data and deep GP relationships, built over many years, which is why there are so few scaled players when compared to buyouts, for example, and why new entrants have tended to buy rather than build.
Part of the solution, meanwhile, is undoubtedly the retailization of private markets. ‘40 Act funds are already playing a significant role in this space. J-curve mitigation, diversification, and strong returns all make this an attractive strategy for private wealth investors.
An Evercore report indicated that secondaries buyers had raised around $62bn via ’40 Act funds as of October 20245. Meanwhile, ICG, Pantheon, Coller Capital, Hamilton Lane, Apollo, Ardian, StepStone, Franklin Templeton and Lexington Partners have all recently launched or disclosed plans to launch evergreen secondaries vehicles.
Secondaries Fundraising
Through ‘40 Act Funds
Hover to find out more
Source: Secondaries Investor
Retailization
Part of the problem is that barriers to entry in the secondaries market are high – to the benefit of incumbents, of course. This is a strategy that requires vast amounts of data and deep GP relationships, built over many years, which is why there are so few scaled players when compared to buyouts, for example, and why new entrants have tended to buy rather than build.
Part of the solution, meanwhile, is undoubtedly the retailization of private markets. ‘40 Act funds are already playing a significant role in this space. J-curve mitigation, diversification, and strong returns all make this an attractive strategy for private wealth investors.
An Evercore report indicated that secondaries buyers had raised around $62bn via ’40 Act funds as of October 20245. Meanwhile, ICG, Pantheon, Coller Capital, Hamilton Lane, Apollo, Ardian, StepStone, Franklin Templeton and Lexington Partners have all recently launched or disclosed plans to launch evergreen secondaries vehicles.
Secondaries Fundraising
Through ‘40 Act Funds
Click to find out more
Source: Secondaries Investor
New Entrants
We are also seeing new entrants, particularly in the GP-led segment, with direct private equity platforms seeking to leverage their underwriting expertise in the flourishing single asset continuation vehicle market, whilst also bringing their significant capital formation prowess to bear. Leonard Green & Partners, Accel-KKR, Blackstone, and New Mountain Capital are just some of the firms to have successfully entered this space.
There have been some false starts, however. Astorg Partners, for example, has called time on its efforts to join the GP-led buyside. One challenge that these platforms face is the potential for perceived conflicts of interest, as they seek to buy into companies owned by firms that they compete with in the realm of direct investing.
Meanwhile, some GP stakes investors are also seeing synergies in secondaries, including leveraging existing GP relationships. Blue Owl Capital, for example, launched an inaugural fund focused on single asset GP-leds in 2023. The firm is understood to have raised more than $1bn in commitments so far6.
New Entrants
We are also seeing new entrants, particularly in the GP-led segment, with direct private equity platforms seeking to leverage their underwriting expertise in the flourishing single asset continuation vehicle market, whilst also bringing their significant capital formation prowess to bear. Leonard Green & Partners, Accel-KKR, Blackstone, and New Mountain Capital are just some of the firms to have successfully entered this space.
There have been some false starts, however. Astorg Partners, for example, has called time on its efforts to join the GP-led buyside. One challenge that these platforms face is the potential for perceived conflicts of interest, as they seek to buy into companies owned by firms that they compete with in the realm of direct investing.
Meanwhile, some GP stakes investors are also seeing synergies in secondaries, including leveraging existing GP relationships. Blue Owl Capital, for example, launched an inaugural fund focused on single asset GP-leds in 2023. The firm is understood to have raised more than $1bn in commitments so far6.
Specialization
As the secondaries market grows in breadth and depth, it is becoming increasingly specialized. We have seen funds raised specifically for GP-led secondaries, but we are also seeing more specificity, including funds for single asset GP-leds or tail-end portfolios.
At the same time, GP-leds are seeping into new asset classes, with funds being raised for credit continuation vehicles and venture capital continuation vehicles. At the deal level, continuation vehicle transactions are closing in a broadening array of sectors, as demonstrated by PSG’s $2bn software-focused continuation fund,7 Accel-KKR’s single-asset CV for an enterprise software business8 and the launch by First Reserve and EnCap of natural gas-heavy continuation vehicles in mid-20259.
This trend towards greater specialization is a well-trodden path. It has already played out in the direct buyout market, driven in part by investor demand for greater control over their exposures. After all, the different sub-asset classes within secondaries today carry different risk-return profiles.
Investors are responding by becoming increasingly sophisticated in their approach to secondaries allocations. Where they may previously have had a single broad bucket, many are now maintaining separate allocations for highly diversified LP interests and highly concentrated single asset continuation vehicles, for example.
These allocations can be targeted at funds specializing in a distinct secondaries strategy or used to manage exposures through co-investment. For instance, an investor seeking to enhance diversification may strike an agreement to co-invest alongside all LP secondaries deals in a generalist secondaries fund, while foregoing co-investment on GP-leds.
Furthermore, as the risk profile of secondaries strategies becomes increasingly diverse, particularly with the rise of higher-return GP-led continuation vehicles, LPs are drawing on a wider range of capital sources to match the opportunity. These include opportunistic mandates and credit allocations, which often sit outside traditional private equity buckets, and which could prove critical to alleviating the secondaries undercapitalization problem.
Specialization
As the secondaries market grows in breadth and depth, it is becoming increasingly specialized. We have seen funds raised specifically for GP-led secondaries, but we are also seeing more specificity, including funds for single asset GP-leds or tail-end portfolios.
At the same time, GP-leds are seeping into new asset classes, with funds being raised for credit continuation vehicles and venture capital continuation vehicles. At the deal level, continuation vehicle transactions are closing in a broadening array of sectors, as demonstrated by PSG’s $2bn software-focused continuation fund,7 Accel-KKR’s single-asset CV for an enterprise software business8 and the launch by First Reserve and EnCap of natural gas-heavy continuation vehicles in mid-20259.
This trend towards greater specialization is a well-trodden path. It has already played out in the direct buyout market, driven in part by investor demand for greater control over their exposures. After all, the different sub-asset classes within secondaries today carry different risk-return profiles.
Investors are responding by becoming increasingly sophisticated in their approach to secondaries allocations. Where they may previously have had a single broad bucket, many are now maintaining separate allocations for highly diversified LP interests and highly concentrated single asset continuation vehicles, for example.
These allocations can be targeted at funds specializing in a distinct secondaries strategy or used to manage exposures through co-investment. For instance, an investor seeking to enhance diversification may strike an agreement to co-invest alongside all LP secondaries deals in a generalist secondaries fund, while foregoing co-investment on GP-leds.
Furthermore, as the risk profile of secondaries strategies becomes increasingly diverse, particularly with the rise of higher-return GP-led continuation vehicles, LPs are drawing on a wider range of capital sources to match the opportunity. These include opportunistic mandates and credit allocations, which often sit outside traditional private equity buckets, and which could prove critical to alleviating the secondaries undercapitalization problem.
Benchmarking
A more rigorous and nuanced approach to benchmarking may help accelerate this process. An early-stage venture capital fund would never be benchmarked against a multi-billion-dollar buyout fund, for example, and yet there is still some way to go before LP secondaries, multi-asset continuation vehicles, and single asset continuation vehicles can be effectively benchmarked against their own kind. Recent data points offer some encouragement. For example, a recent report by Morgan Stanley has reported median MOICs of 1.4× for continuation funds from 2018 through to 2023, modestly outperforming buyout peers10.
This is all part of a natural maturation process for the industry, which will ultimately help assuage its undercapitalization problem. The more capital that comes into this space, the more investment opportunities will be unlocked, driving the continued growth of the asset class in a virtuous secondaries cycle.
Multiple of Invested Capital –
A Comparison Between Continuation Funds and Buyouts, 2018–2023
Hover to find out more
Source: Morgan Stanley Private Capital Advisory, the case for continuation funds, August 2024
Benchmarking
A more rigorous and nuanced approach to benchmarking may help accelerate this process. An early-stage venture capital fund would never be benchmarked against a multi-billion-dollar buyout fund, for example, and yet there is still some way to go before LP secondaries, multi-asset continuation vehicles, and single asset continuation vehicles can be effectively benchmarked against their own kind. Recent data points offer some encouragement. For example, a recent report by Morgan Stanley has reported median MOICs of 1.4× for continuation funds from 2018 through to 2023, modestly outperforming buyout peers10.
This is all part of a natural maturation process for the industry, which will ultimately help assuage its undercapitalization problem. The more capital that comes into this space, the more investment opportunities will be unlocked, driving the continued growth of the asset class in a virtuous secondaries cycle.
Multiple of Invested Capital – A Comparison Between Continuation Funds and Buyouts, 2018–2023
Click to find out more
Source: Morgan Stanley Private Capital Advisory, the case for continuation funds, August 2024
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