The secondary market is changing fast, bringing both new opportunities and hurdles for managers. With a variety of transaction types—such as GP-led and LP-led deals, direct secondaries, credit secondaries, and portfolio financing—on the rise, the market is growing more complex. Each type of transaction carries a distinct risk profile, which adds complexity to the operational shifts managers need to make. We explored these challenges in depth in our recent report in collaboration with Private Equity Wire.
One significant driver of growth in the secondary market is its largely untapped potential, given that currently, less than 2% of private assets under management fall within this space. Yet, this growth brings up important questions about whether managers are ready to manage the escalating scale and complexity. Among the biggest challenges highlighted by market players are concerns from sellers, a structural inability to scale efficiently, and operational inefficiencies.
According to our survey, almost a third (31%) of managers regard seller apprehension as their primary challenge. Although this issue is gradually easing due to narrowing valuations and growing market awareness, structural and operational stumbling blocks still persist. Our data showed that over one-fifth (21%) of managers pinpoint structural incapacity to scale as a principal challenge, with operational inefficiencies, like poor data management and process bottlenecks, ranking as the third major hurdle.
To maintain sustainable growth, secondary managers need to focus on developing scalable operational and digital frameworks. The next growth phase hinges on refining portfolio management, boosting process efficiency, and enhancing data ingestion and aggregation capabilities. Strong due diligence processes, supported by high-quality data and cutting-edge analytics, are crucial for identifying and executing optimal deals in an increasingly competitive landscape.
The market’s operational demands are expected to intensify as it grows. This trend emphasizes the necessity of a thorough, technology-centered data strategy that fits seamlessly with diverse operational models across different organizations and regions. Discussions around innovative concepts like the tokenization of secondary positions suggest even more complexity ahead, potentially mirroring challenges common in retail markets.
In the end, the secondary market’s success will largely depend on managers’ ability to evolve their operational frameworks to keep up with expanding needs. By investing in technology and data-focused strategies, managers can streamline processes, make more informed decisions, and place themselves strategically to seize new opportunities.
If you’re interested in diving deeper into the possibilities and challenges presented by the rapid expansion of the secondary market, consider reading our full report.
