Case for Secondary Exposure in Mature Private Asset Portfolios
- Strategy insight
May 14, 2026 | 8 min read
Managing Director
Vice President
Lower market beta profile of secondary allocations offers portfolio volatility dampening and supports faster recoveries.
Secondary allocations within private asset portfolios are often considered as tactical solutions. They are an efficient way to mitigate the J-curve, accelerate capital deployment, and generate earlier liquidity by investing in mature, calibrated assets. While these features of a secondary strategy are well understood, they understate what we believe is a more important role secondary allocations can play in constructing resilient, downside protected private asset portfolios.
For established private equity programs, the primary advantage of adding a secondary allocation is structural: lower systematic risk. Across market cycles, secondary strategies have tended to exhibit lower beta, resulting in more moderate drawdowns and faster recoveries during periods of market stress. In our analysis of private equity returns over the past 20 years, secondary strategies in aggregate realized meaningfully lower measured beta than traditional buyouts. While absolute returns have been modestly lower, secondary strategies have outperformed traditional buyouts on a risk-adjusted basis.
This lower beta is not incidental. It reflects both the maturity of underlying assets and the pricing dynamics of the secondary market, where capital can often be deployed at discounts during market downturns. A structural allocation to secondary strategies can reduce volatility and improve portfolio resilience while avoiding reliance on market timing, which is notoriously hard to do in private markets given their long capital deployment and holding periods.
In the sections that follow, we examine the data underpinning these results and explore how the lower beta and stable return profile of secondary allocations can strengthen portfolio construction and improve risk and return profile of mature private equity programs.
Lower market beta
Secondary investments are often perceived as less sensitive to broad market movements—this is because risk is taken and priced differently in the secondary market. Purchase prices tend to become more compelling for buyers as liquidity needs rise and market sentiment weakens, allowing capital to be deployed at wider discounts. These dynamics, together with the ability to invest in seasoned assets rather than taking blind pool risk, moderate effective portfolio beta and help cushion drawdowns, even as secondary valuations (NAVs) remain responsive to market shocks post-acquisition.
Table 1: Risk-return comparison summary for secondary vs. traditional buyout funds
Analysis of time-weighted returns for the period March 31, 2005, to September 30, 2025, for the MSCI Global Buyout (“Traditional buyout”) and the MSCI Global Private Equity Secondary Fund (“Secondary funds”) benchmarks. Source: MSCI. Past performance is not a reliable indicator of future results.
Our analysis shows a clear difference in systematic risk between secondary and traditional buyout funds. Since 2005, secondary funds exhibited a beta of 0.27 to the MSCI ACWI IMI Index, compared with 0.45 for traditional buyout funds (see Table 1). The table shows that this lower beta was driven primarily by lower correlation to public markets.
Secondary funds also produced a higher risk-adjusted return compared to traditional buyout funds, as measured by Sortino, Sharpe, and information ratios, despite slightly lower absolute returns. These structural characteristics position secondary fund allocations as a volatility‑dampening component within well-established private equity portfolios.
To reveal why these risk characteristics persist across cycles, it is necessary to examine how secondary pricing behaves through changing market environments.
Countercyclicality
One of the significant drivers of lower beta is how secondary investments are priced across market cycles. A defining feature of the secondary market is the inverse relationship between pricing and market conditions. Chart 1 shows that secondary purchase prices are typically lower when underlying public equity market conditions deteriorate, lowering the public market correlation and subsequently the beta of secondary fund allocations.
Chart 1: Secondary funds tend to outperform when market volatility is elevated
Comparison of average LP-led secondary purchase prices with rolling 2-year returns of MSCI ACWI IMI, illustrating the tendency for discounts to widen during periods of weaker or stressed markets.
As of September 30, 2025. Source: MSCI, Greenhill Global Semi-Annual Secondary Market Review. Secondary pricing represents average high bid across all strategies. Certain year end data is subject to revision and restatement by Greenhill in subsequent publications. The data presented above is based on the available reports released on a semi-annual basis concurrent with the period reported on. Past performance is not a reliable indicator of future results.Â
For example, during the second half of 2022 the average discounts for secondary assets were approximately 20%, meaningfully enhancing returns for portfolios able to deploy capital into these opportunities.
Importantly, while pricing dynamics contribute a diversifying source of returns, pricing alone does not determine return outcomes. Although wider discounts can provide attractive entry points, they should not be relied upon as the primary driver of performance for secondary investments. For managers focused on asset quality and alignment with underlying GPs, gains are typically driven by post‑purchase appreciation, with discounts serving as an incremental, not essential, tailwind.
Implications for strategic allocation
Allocating to secondary funds on an episodic, opportunistic basis risks missing the environments in which their diversification benefits are most pronounced. For mature private equity portfolios, we believe secondary funds are most effective when maintained as a persistent, structural allocation alongside traditional buyout funds.
This conclusion is reinforced by our analysis of blended portfolio outcomes measured across market cycles. Combining traditional buyout and secondary fund returns from March 2005 to September 2025, using MSCI benchmark data, shows that the highest risk-adjusted returns, as measured by Sortino ratios, have historically been achieved in portfolios that include persistent secondary fund allocations. As illustrated in Table 2, while absolute returns for buyout funds have outperformed secondary strategy returns, portfolios that combined buyout and secondary allocations generated better risk-adjusted return profiles compared to standalone buyout portfolios, reflecting their complementary risk, downside protection, and recovery characteristics.
Table 2: Hypothetical allocation to secondary funds alongside traditional buyouts shows enhanced risk-adjusted returns
Performance comparison for weighted combinations of MSCI Global Buyout and MSCI Global Private Equity Secondary Fund Benchmark TWRs. Past performance is not a reliable indicator of future results.
As of September 30, 2025. Sources: MSCI Private Capital Solutions. Past performance is not a reliable indicator of future results. Not representative of any HarbourVest fund, account, and not representative of any HarbourVest experience.Â
Secondary fund investments are not merely a tactical tool for J-curve mitigation, but a differentiated source of diversification and downside risk protection, which can meaningfully enhance portfolio outcomes acting as a volatility dampener, particularly in periods of market stress.
Periods of market stress
Notably, many attractive secondary investment opportunities have emerged during periods of market stress – such as the Global Financial Crisis, the European debt crisis, COVID and the inflation shock of 2022 – when traditional buyout market activity and new commitments are most constrained. More generally, secondary funds have historically demonstrated greater resilience to market stress compared to traditional buyout funds. This relationship is illustrated in Chart 2, where the difference in secondary fund returns less traditional buyout fund returns are shown alongside levels of the CBOE Volatility Index (VIX), a measure of the market’s expectations for near-term market volatility of the S&P 500.
Rather than eliminating private market risk, secondary fund investments reshape its timing and expression, enabling portfolios to better absorb shocks amid heightened volatility.
Chart 2: Secondary funds tend to outperform when market volatility is elevated
The relative return between the MSCI Global Private Equity Secondary Fund Benchmark and the MSCI Global Buyout Benchmark (“Secondary-traditional,” left) has tended to rise in periods of market stress (indicated by elevated VIX levels).
As of September 30, 2025. Source: MSCI Private Capital Solutions, CBOE. Past performance is not a reliable indicator of future results.
Further reinforcing this resilience, secondary strategies have historically experienced shallower drawdowns and faster recoveries during market dislocations. For example, during the Global Financial Crisis the maximum drawdown of the secondary fund benchmark was 23%, compared to 31% for traditional buyout funds and 49% for MSCI ACWI IMI.
Chart 3: Secondary funds have historically experienced shallower drawdowns
Comparison of drawdowns for public equity (MSCI ACWI IMI), buyouts (MSCI Global Buyout) and secondary funds (MSCI Global Private Equity Secondary Fund).
As of September 30, 2025. Sources: MSCI Private Capital Solutions, MSCI ACWI IMI. Past performance is not a reliable indicator of future results.
This reduction in downside sensitivity helps moderate the transmission of public market shocks into private equity portfolios, reinforcing the role of secondary allocations as a structural source of volatility dampening rather than a tactical response to temporary dislocations.
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Conclusion
Secondary strategies are often viewed as tactical tools, but the evidence points to a more durable role defined by lower portfolio beta. Secondary allocations have consistently exhibited lower measured beta than traditional buyouts, leading to reduced volatility, shallower drawdowns, and faster recoveries across cycles. This beta reduction is structural, driven by countercyclical pricing dynamics rather than reliance on market timing. Additionally, managers focused on the quality of seasoned assets in secondary opportunities can further differentiate portfolio returns over the life of the investment. For mature private equity portfolios, where encounters with stressed environments are inevitable, secondary allocations are not optional complements but a necessary structural tool for reinforcing portfolio resiliency.
Disclosure
Data and Methodology Note
All return andcorrelation data referenced in this paper are derived from MSCI Private Equity benchmarks and MSCI ACWI data. Traditional buyout performance refers to the MSCI Global Buyout benchmark, and secondary performance refers to the MSCI Global Private Equity Secondary FoF Benchmark. Time-weighted returns (TWRs) are used to compare performance paths across market environments. Correlations are calculated using long-horizon benchmark return series (March 31, 2005-September 30, 2025). While MSCI data are widely used by institutional investors, historical performance is not indicative of future results. All discount data is sourced from Greenhill semi-annual secondary market reports.
Diversification does not ensure a profit or protect against a loss.Â
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Secondary Investing Risk. Secondary market transactions may impose higher costs than other investments and may require a fund to assume contingent liabilities associated with events occurring prior to the Fund’s investment. The overall performance of an Underlying Portfolio Fund acquired through a secondary transaction will depend in large part on the purchase price paid. In addition, a fund will generally not have any ability to negotiate terms with respect to interests in Underlying Portfolio Funds invested in through secondary market transactions.
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