Frans Verhaar: Secondaries are mature. Are investors too?
This column was originally written in Dutch. This is an English translation.
By Frans Verhaar, Managing Director, Head of Continental Europe at bfinance
The stormy growth of secondaries in private markets is not a temporary boom. What was once a niche for opportunistic buyers of tail-end portfolios has grown into a mature ecosystem in which billions are traded, structures are becoming increasingly complex and expectations are rising. But with growth comes the risk of complacency. Discipline is crucial, especially now.
From emergency exit to strategic tool
Where secondary transactions were traditionally driven by liquidity needs or balance sheet optimisation, we are now seeing a shift towards strategic applications. General partners are using continuation funds to hold on to strong assets for longer, and limited partners are actively reallocating their exposure or adjusting their portfolios without waiting for natural exits.
The secondary market is thus increasingly functioning as a tool for portfolio management rather than as an emergency exit. That sounds like a sign of maturity. Yet the picture is less clear-cut.
Normalisation forces sharpness
After a period of abundant liquidity and low interest rates, the playing field has changed. Higher capital costs and more selective financing are once again determining price mechanisms. Secondary buyers can no longer rely blindly on historical returns or implicit support from cheap leverage. Discount discipline is making a comeback.
At the same time, bargaining power is shifting. In times of capital abundance, sellers often dictated the terms. Today, the market is more critical. Buyers are looking more closely at asset quality, cash flow profiles and exit prospects. Not every continuation fund automatically deserves the benefit of the doubt.
Three points of attention for institutional investors
This is a crucial moment for institutional investors. Secondaries are often presented as a way to mitigate the J-curve effect, build exposure more quickly and improve vintage diversification. These are valid arguments, but they should not become a substitute for thorough analysis.
Firstly, price discipline is essential. In a competitive market, there is a strong temptation to make concessions on discount or structure in order to secure allocation. But the entry price is a decisive return factor in secondaries. A few percentage points difference can distinguish outperformance from mediocrity.
In addition, the growth of GP-led transactions requires extra attention to alignment. The same party that sells often also manages the new vehicle. This creates potential conflicts of interest. Robust governance, independent valuations and active involvement of LPs are not formalities, but necessary safeguards.
Finally, secondaries must fit within the broader portfolio context. They are not an isolated allocation decision. Liquidity planning, total private market exposure and risk appetite remain key. In an environment where denominator effects can quickly return, integrated insight is essential.
The myth of defensiveness
A common narrative is that secondaries are by definition more defensive or predictable than primary private equity. Although the average holding period may be shorter and cash flows more visible, the underlying risk associated with unlisted assets with limited liquidity and model-based valuation remains. The complexity of structures adds an extra layer to this.
Secondaries are not a risk-free shortcut, but a different way to access the same underlying risk.
Discipline as a distinguishing feature
The explosive growth of private market secondaries is a logical consequence of the maturity of the private markets themselves. With trillions in outstanding commitments, an active resale market is inevitable. The question is not whether secondaries will become a permanent part of institutional portfolios. They already are.
The real question is whether investors can muster the discipline to think against the grain in a popular strategy. In times of abundance, access is the most scarce decisive factor. In times of normalisation, it is the investor's judgement.
Discipline is rarely spectacular. But in secondaries, it is often the difference between a good transaction and an expensive lesson.