Paul Capital | Investment Platforms | Secondary Investments

About Secondary Transactions

A private equity secondary is the acquisition of one or more limited partnership interests or direct investments from the original investor. Such transactions are called "secondaries" because the purchase and sale of the asset is occurring a second time following its original issuance.

The value of secondary market acquisitions has grown dramatically over the past decade. What began as a niche market in the early 1990s has grown into a substantial asset class with global secondary transaction volume now amounting to $10-20 billion each year.

Why Secondary Investments?

Secondary investments exhibit a mitigated J-Curve due to the early return of capital and the time advantage of buying into a fund later in its life. Purchasing a fund that is several years old allows the acquirer to avoid the fund's early write-offs and expenses, including management fees, which tend to produce negative returns during a fund's early years.
Buyers can make their own assessment of the existing assets and avoid some or all of the "blind pool" investment risk associated with traditional fund commitments.
A secondary fund provides enhanced diversification compared to a primary fund. Secondary funds are generally invested with hundreds of managers and funds of different types and vintage years with underlying ownership positions in thousands of portfolio companies across a wide variety of industries and geographies. This diversification reduces the volatility associated with primary private equity fund investments which are typically more concentrated.