Four Reasons the Current Market Dislocation Could Benefit Private Secondaries Investors
Investors are experiencing significant market volatility stemming from tariffs and ongoing policy change. While this effect is immediately felt in public markets, it will inevitably affect private markets as well. And though near-term volatility can be unsettling for many, it can also create opportunity for long-term investors. Making strategic allocations to secondaries can be a valuable tool for investors through periods of market dislocation like we are experiencing today.
Secondary pricing dips during previous market dislocations
The secondary market is undercapitalized under normal conditions, but a significant increase in sellers coupled with potential buyers choosing to step back when markets falter has historically caused secondary pricing to decline. The chart below illustrates this point, showing that secondary pricing dipped in periods of market dislocation over the last 20 years.
Secondary market pricing (2005-2024)
A closer look
Source: Greenhill Cogent, Global Secondary Market Review 2024 (January 2025) and Secondary Market Review (2005-2024). Annual data represents 12-month average for each full year. Secondary pricing represents average high bid across all strategies. As of December 31, 2024. Certain year end data is subject to revision and restatement by Greenhill Cogent 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.
Though buyers can obtain outsized pricing discounts in periods of volatility, there is no guarantee of strong returns. As always, skill and relationships are essential to identify high-quality assets and to choose the right deals. We have highlighted four current areas of opportunity for investors across the broader secondary markets.
Opportunity #1: Private asset holders that need to sell
As investors evaluate the loss in public equity value, they could experience the “denominator effect,” causing them to sell private market assets not for economic reasons, but rather to rebalance their portfolios. Also, investors experiencing liquidity constraints due to market dislocation could become forced sellers. And as a known current example, some higher education endowments are exploring the sale of their private equity exposures due to concerns over funding which would impact their immediate liquidity needs.
We believe that as today’s private investment holders make the difficult choice to free up capital and/or realign exposures, those with the ability to invest are positioned to benefit from large secondary sales of strong assets at potentially steep discounts. Coupling pricing advantages with a selection approach targeting assets that are expected to appreciate over time can produce significant returns.
Opportunity #2: Fewer M&A exit opportunities for General Partners
In the GP-led space, we expect the further elongation of holding periods and the need to return capital to investors will lead to more continuation vehicle deal opportunities for secondaries buyers. Global M&A numbers were already at a two-decade low of 6,955 in the first quarter of 2025,1 as the prospects of a trade war dampened activity pre-tariffs. And while values were up versus the same period last year, this was driven by five mega-deals as opposed to a broader recovery.
Reflecting this subdued dealmaking environment, global private equity exits were also down in the quarter by both value and volume.2 With GP-led deals already accounting for $75 billion of secondaries volume last year, we expect this year’s total to be higher, given dealmakers’ wait-and-see approach to M&A.
Opportunity #3: Growth in private credit secondaries
The private credit market has continued to take market share from the commercial banks and the broadly syndicated loan market since the GFC. As a result, this market now represents over $1.6 trillion of AUM and is expected to surpass $2 trillion in the coming years. Through this growth, we anticipate there will be structural liquidity needs from both LPs and GPs and expect private credit secondaries to benefit from this trend.
As liquidity needs accelerate, we expect 2025 private credit secondary deal flow to be materially higher than the approximately $12 billion closed last year.3 We believe the undercapitalized nature of this market creates a compelling opportunity for investors to capture both a return premium and diversification benefits relative to the underlying assets.
Opportunity #4: The reliability of infrastructure secondaries
Because infrastructure assets are highly regulated, often backed by long-term contracts, and typically include built-in inflation adjustments, historically they tend to deliver predictable returns and relatively stable valuations. These fundamental attributes have supported infrastructure’s continued performance even through volatile markets.
Investing in infrastructure through secondaries aims to provide additional layers of risk mitigation, such as exposure to seasoned assets, broad diversification, enhanced liquidity, and potential discounts supporting strong early performance. This fast-growing segment is also an undercapitalized marketplace – creating opportunity, even amid volatility, for those who know how to capitalize on it. We believe the inherent resilience of the asset class paired with the benefits of secondary investments makes infrastructure secondaries an attractive strategic allocation in the current market downturn.
If it were that easy, anyone could do it
Accessing the best quality deal flow in a difficult environment requires deep relationships across both the LP and GP communities. Understanding exactly what you are buying takes detailed and comprehensive due diligence on managers and, in GP-led deals especially, on their underlying assets. Pricing assets in uncertain times requires both skill and hard-won experience. Structuring deals when bid-ask spreads are wide takes in-depth knowledge and expertise.
Thus, the importance of selecting a secondary manager cannot be overstated. Through careful evaluation, investors can better navigate the complexities of – and capitalize on the opportunities presented by – turbulent markets. Key questions investors should ask include:
- Are you investing in high-quality assets?
- Do you have the relationships and access to uncover the best deal flow?
- Have you successfully deployed capital in prior periods of dislocation?
- Do you have the right information and tools to accurately price risk?
- Are you nimble and able to capture compelling opportunities at scale?
Connect with HarbourVest
Our strategic approach
HarbourVest’s secondary team benefits from extensive access to both LP-led and GP-led deal flow that allows us to pursue what we believe are the highest-quality assets. Our experience navigating through market cycles has helped us capture compelling opportunities across the entire universe of secondary investments. As one of the world’s five largest secondaries managers with historically strong performance and more than $62 billion deployed over 35+ years, we believe we are well-positioned to support investors interested in taking advantage of the opportunities available in today’s secondaries market. At HarbourVest, we continue to search for outstanding investment opportunities that will drive strong long-term returns for our clients through short-term volatility and across all of our investment strategies.
Footnotes
Ion Analytics, Global M&A volume climbs in 1Q25 amid decline in deal count – M&A Highlights (March 2025)
S&P Global, Private equity exits fall to 2-year low in Q1 2025 (April 2025)
- Campbell Lutyens as of 12/31/24
Disclosure
HarbourVest Partners, LLC is a registered investment adviser under the Investment Advisers Act of 1940. This material is solely for informational purposes and should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication, are not definitive investment advice, and should not be relied upon as such. This material has been developed internally and/or obtained from sources believed to be reliable; however, HarbourVest does not guarantee the accuracy, adequacy or completeness of such information. There is no assurance that any events or projections will occur, and outcomes may be significantly different than the opinions shown here. This information, including any projections concerning financial market performance, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. The information contained herein must be kept strictly confidential and may not be reproduced or redistributed in any format without the express written approval of HarbourVest.
Nothing herein should be construed as a solicitation, offer, recommendation, representation of suitability, legal advice, tax advice, or endorsement of any security or investment and should not be relied upon by you in evaluating the merits of investing in HarbourVest funds or in any other investment decision.
An investment in the private markets involves high degree of risk, and therefore, should be undertaken only by prospective investors capable of evaluating the risks of the Fund and bearing the risks such an investment represents. The following is a summary of only some of the risks of investing in private markets.
Risks Related to the Structure and Terms of a Private Markets Fund. Investments in a fund of funds structure may subject investors to additional risks which would not be incurred if such investor were investing directly in private equity funds. Such risks may include but are not limited to (i) multiple levels of expense; and (ii) reliance on third-party management. In addition, a fund may issue capital calls, and failure to meet the capital calls can result in consequences including, but not limited to, a total loss of investment.
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Availability of Suitable Investments. The business of identifying and structuring investments of the types contemplated by the strategy is competitive and involves a high degree of uncertainty. Furthermore, the availability of investment opportunities generally will be subject to market conditions and competition from other groups as well as, in some cases, the prevailing regulatory or political climate. Interest rates, general levels of economic activity, the price of securities, and participation by other investors in the financial markets may affect the value and number of investments made by the strategy or considered for prospective investment.
Reliance on the General Partner and Investment Manager. The success of the strategy will be highly dependent on the financial and managerial expertise of a fund’s general partner and investment manager and their expertise in the relevant markets. The quality of results of the general partner and investment manager will depend on the quality of their personnel. There are risks that death, illness, disability, change in career or new employment of such personnel could adversely affect results of the strategy. The limited partners will not make decisions with respect to the acquisition, management, disposition or other realization of any investment, or other decisions regarding the strategies’ businesses and portfolio.
Market Risk. Private equity, as a form of equity capital, shares similar economic exposures as public equities. As such, investments in each can be expected to earn the equity risk premium, or compensation for assuming the non-diversifiable portion of equity risk. However, unlike public equity, private equity’s sensitivity to public markets is likely greatest during the late stages of the fund’s life because the level of equity markets around the time of portfolio company exits can negatively affect private equity realizations. Though private equity managers have the flexibility to potentially time portfolio company exits to complete transactions in more favorable market environments, there’s still the risk of capital loss from adverse financial conditions.
Credit Strategy Risks. A fundamental risk associated with credit investments is credit risk, which is the risk that a borrower will be unable or unwilling to make principal and interest payments on its outstanding debt obligations when due. Investments in subordinated or junior debt investments, should an issuer trigger an event of default, depending on the capital structure and the issuer’s financial situation, a loss of the entire value of the investment is possible. Adverse changes in the financial condition of an issuer or in general economic conditions (or both) could impair the ability of such issuer to make payments on its debt and result in defaults on, and declines in, the value of its subordinated debt more quickly than in the case of the senior debt obligations of such issuer. Adverse changes in the financial condition of an issuer or in general economic conditions (or both) could impair the ability of such issuer to make payments on its debt and result in defaults on, and declines in, the value of its subordinated debt more quickly than in the case of the senior debt obligations of such issuer.
Infrastructure Strategy Risks. Investments in infrastructure and real assets entail certain specific risks, including fluctuations of commodity prices, uncertainty of reserves, exploration and development risks, uncertainty in the developing alternative energy markets and technology, and governmental support and regulations. Infrastructure strategies may be exposed to substantial risk of loss from environmental claims arising in respect of its investments. Furthermore, changes in environmental laws or regulations or the environmental condition of an investment could create liabilities that did not exist at the time of its acquisition and that could not have been foreseen. Investments in natural resources and energy services companies, including mining and oilfield service, product manufacturing, and technology businesses that are involved in the preparation, drilling, completion, production, and abandonment of oil and gas wells and mines could be subject to fluctuations in the demand for their services based on commodity prices, the macroeconomic environment, customer concentration, availability of alternative technologies or services and political or market pressures favoring these alternatives. Environmental groups could protest about the development or operation of infrastructure assets, which might induce government action to the detriment of the Fund.
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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