Private equity has been growing as an asset class with total assets under management reaching $6.5 trillion in 2020 vs. $2.4 trillion in 2010. While this growth in private equity has been going on for quite a while, driven by the search for higher returns in a low yield world, a more recent phenomenon has been the growth in the private equity secondary market. The secondary market, where buyers and sellers trade existing interests in private equity funds and their portfolio companies, has grown to almost $90 billion, a six-fold increase during the past decade.
These days, the secondary market is seen as a necessary option by limited partners who want to manage their liquidity requirements or reduce exposure to future capital calls. As a result, stakes in well-performing funds are also increasingly available for purchase in the secondary market, just like stakes of well-performing companies are available at the NYSE and NASDAQ exchanges.
While the secondary market provides numerous benefits to sellers, it is also very attractive to buyers. Purchasing secondary interests, flattens the J-curve, and is an attractive option for investors who are looking to access the high returns of the private equity asset class while maintaining shorter hold periods and getting quicker distributions.
Read more/Source: Entrepreneur
