Secondaries fundraising hit a record $93.8 billion in 2023 - a 159 percent increase over the previous year - according to alternative assets data provider Preqin News.

Secondaries have undergone an incredible evolution over the past few years, as secondary fundraising totals in 2017 reached only $44.8 billion.

Investment bank/financial services firm William Blair & Company found 2023 to be a robust year in secondaries for both LPs and GPs alike.

“Secondary market volume across both LP-led and GP-led transactions was buoyed by strong fundraising, LP liquidity needs, and further penetration of secondary solutions within the GP market,” the company noted in its 2024 Secondary Market Report.

Delving deeper into root causes, Blair noted that secondary market volume was strengthened by factors including high interest rates, inflation, and an ever-shifting global political environment. The current success of secondaries also occurred at a time when, according to Blair, “global M&A and IPO activity declined 16% and 34%, respectively, in 2023.”

International business law firm Torys LLP wrote in February of this year that GP-led secondary deals in particular showed growing strength and momentum toward the end of last year and into 2024. 

“For H2 2023, transaction volume in global GP-led markets climbed 88% compared to the first half of the year, according to [investment bank] Jeffries,” the company wrote, “with $34 billion of the total $52 billion in deal volume (approximately 65%) estimated to have resulted from transactions closed in the second half of 2023.”

The company notes that the $52 billion in GP-led secondaries volume last year is estimated to have come from $46 billion in asset sales and $6 billion in structured equity and fund finance deals, with “approximately 75% of GP-led deals in 2023 in the buyout space.”

Torys believes that this last factor signals “substantial room to run in the use of these deals in other core strategies like venture, real estate, and credit.”

But while the firm sees the GP-led market as resilient, they also note that considerable dry powder in the space left the door open for still greater progress, all of which made for anticipation of a strong 2024.

“Market chatter to start the year suggests that the momentum from the second half of 2023 has continued into the initial months of 2024,” the company wrote. “There is an expectation among many market participants that an increasing number of high-quality assets will see realizations in the form of GP-led secondary transactions in the coming year.”

The multinational law firm Ropes & Gray LLP noted in a June 2024 article that while current LP-led secondary deal flow is fairly strong, “many of the big secondaries buyers are looking to balance LP portfolio acquisitions with GP-led transactions, or more structured deals.” 

Ropes & Gray writes that secondaries firms are therefore likely to shift focus toward GP-led secondaries in the near term, and that they expect no drop-off in activity when the M&A and IPO markets fully reopen. They even note that this increase in activity marks a major shift in the perceived status of GP-led secondary investments, as “GP-led secondaries are no longer thought of as a last resort exit option if traditional routes aren’t available.”

From iGlobal Forum’s own proprietary research, conducted by polling participants in upcoming iGlobal events, one secondaries investor noted that the increase in GP-led activity has been so prominent that LPs are starting to question their own ways of interacting with the secondaries market.

“Lexington [Partners] just announced they will start a GP-led business, so they’re making a bet on the market continuing,” the investor said. “A lot of movement in that direction has caused LPs to rethink what it means to be a secondaries fund.”

Another firm surveyed by iGlobal noted that GP-led deals have taken hold in part due to the nature of an investor’s relationship to the investment.

“An LP wants to exit an investment before it matures,” the firm noted. “The GP wants to keep that asset under management.”

So while LP-led deals are certainly still significant in the secondaries market, GP-led deals have all the momentum at present, a situation that many believe will continue. 

“In the advisor world, GP-led deals started being done about 12-15 years ago, but no one knew what to call them,” said the iGlobal-surveyed investor. “Now, every investment bank in the world is doing this.”

For a more in-depth discussion of the particulars of secondaries investing, be sure to attend iGlobal Forum’s “Secondaries Investment Summit,” an interactive program taking place on Wednesday, November 20 in New York City that will explore how you can unlock today’s hottest secondaries investment opportunities.