According to a recent report from Jeffries, global secondary volume was $68 billion, a 58% increase in volume in H1 2024. The increase in volume is due to both an increase in the AUM of secondary funds and an increased in the notional value of the positions due to public market tailwinds.
A Surge in Global Secondary Market Activity
Activity in this market has been close to evenly divided between LP and GP-led processes (roughly 60% LP-led). GPs-led liquidity processes have involved both continuation vehicles and organized tenders. LP processes consist of market transactions typically done at a discount to manager-determined NAV. Average pricing for such LP transactions across all strategies increased three percent from H2 2024 to 88% of NAV, primarily because of the huge sums raised by secondary funds over the last few years.
Liquidity Challenges in Private Markets
The reasons for this activity are not new or underdiscussed. The primary characteristic of the private market (both PE and VC) has been a lack of exit liquidity. The burgeoning LP secondary market is growing because of this lack of liquidity. While the traditional LP secondary market has served PE funds, which still hold substantially more AUM than VC funds, the most acute liquidity need is on the VC side of the ledger. The hurdle for activity in this vertical has been the more difficult calculation of NAV for companies that may not be profitable or even near that point.
According to a report from Secondaries Investor, VC LP secondaries account for only 20% of the secondaries market. Further, most of the activity in that 20% consists of GP-led continuation vehicles by large firms such as Lightspeed and Andreessen Horwitz. Outside of the blue-chip megafunds, liquidity is very difficult to come by.
Green Shoots on the Horizon
As always, there may be green shoots around the corner. A public bull market likely means a return to IPO activity. A less active FTC likely means more M&A activity. The market finds a way forward at all times; the difficult part is determining how and when.
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