In the first quarter of 2025, the secondaries market saw record activity, with a total of $40 billion in LP-led deals executed, putting it firmly on track to beat the $89 billion in LP-led volume seen in the entirety of 2024.

Traditionally, private markets have been seen as a hedging tool against traditional equities and fixed income in a broader portfolio, however, this is rapidly changing due to the increased uncertainty around global trade.

In addition to the potential need to rebalance portfolios due to market volatility, the threat of tariffs will hurt both companies’ margins and growth, both of which are key value creation drivers of the private equity model.

As a result, exit horizons are extended and liquidity is compromised, causing investors, such as fund managers, to question whether their private assets should be more liquid to improve their ability to adapt to fluctuations in the market. Private secondaries are increasingly being seen as the answer.

The impact of tariffs

Tariffs had a huge impact on markets globally. Although the initial effects were most severely felt in public equities, the shockwaves spread to private markets, triggering a sell-off.

Private assets are proving to be more sensitive to these huge macroeconomic headwinds than previously expected. This market turbulence is likely to have long-lasting effects on the space, causing investors to be more prepared for similar levels of volatility in the future. As volatility increases, so does investors’ need to access liquidity and sell quickly.

This is where the private secondaries market comes in, providing a lifeline of liquidity in a traditionally illiquid market. Secondaries provide private asset owners with the opportunity to exit their positions early, before an IPO, for example.

As a result, the secondaries markets received a boost with each announcement of new Trump tariffs, given the fresh uncertainty they injected into the market.

The effect of interest rates

Interest rates have fallen from their highs in recent years, having a huge impact on levels of private market investment. As interest rates decrease, the cost of capital is reduced, meaning that more liquidity and debt are available in capital markets, which creates a more favourable environment for deal-making.

General partners (GPs) are able to deploy more debt to get deals over the line and can preserve more equity capital from their funds. This, however, comes at the cost of increasing the risk profile of those deals. Should tariffs result in slower growth, smaller margins and recession, these higher-risk deals will face significant uncertainty looking ahead.

What’s more, as interest rates decrease, government bonds become less attractive, meaning that investors are pushed towards equities, both public and private. These lower rates tend to lift broader

private equity valuations, encouraging limited partners (LPs) to sell older fund stakes at attractive prices. This increased liquidity is positive for secondary markets as it boosts transaction volumes and makes portfolio rebalancing easier for LPs.

When interest rates are low and markets are relatively stable, the discount at which secondaries trade also tends to narrow. Sellers may hold out for better prices, while buyers may feel comfortable paying closer to NAV, expecting portfolio value appreciation. In 2024, for example, LP-led secondary transactions averaged 89% of net asset value (NAV). This represents a significant tightening compared to previous years, indicating that buyers were willing to pay closer to NAV, anticipating portfolio value appreciation in a stable market environment.

Secondaries are the definitive solution

Dramatic changes in the market are becoming increasingly common, and the current geopolitical landscape offers no sign of respite. The ability to adapt in step with new market developments is no longer a nice-to-have, but a necessity.

By empowering private market investors to operate their capital with better access to liquidity, secondaries enable them to make the fast-paced decisions necessary during times of high volatility, such as now.

This is a huge opportunity for growth in the secondaries market. However, there are some huge structural and technological challenges, particularly in terms of data transparency and efficiency, that must be overcome if investors are to make the most out of them.

In the next edition of this series, we’ll explore how the growing transaction volume in the secondaries market is causing data issues for investors.

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