Private equity realisations have slowed significantly since 2022, compressing valuations and making exits more difficult, according to global alternative asset manager GCM Grosvenor.
With traditional exits at decade lows, GP-led secondaries and innovative fund structures are reshaping how investors access liquidity and private equity exposure.
“The private equity market had a significant slowdown in realisation activity within existing portfolios over the last few years, which really started as interest rates began to rise in 2022 and valuations had yet to reset to reflect the higher cost of financing and lower public market comps,” CIO Fred Pollock said.
He highlighted that 2023 recorded the lowest US exit value in the past decade, which caused “quite a bit of heartburn in the ecosystem for private equity”.
“A decent number of people became overallocated to private equity and/or needed liquidity and one established way to solve those issues is to take some of the maturer parts of the portfolio and put them on the market through secondary transactions.”
Pollock said there has been a significant rise in continuation vehicles and single-asset secondaries as GPs aim to give their LPs liquidity while securing more time to create value in their companies.
Historically, these transactions involved taking one or two deals at the end of a fund’s life and moving them into a new vehicle to manage them out; they often weren’t the best assets – they were the ones you couldn’t sell.
“This paradigm has changed completely – now these are often the crown jewel assets in portfolios where you have sponsors deciding they’d like to hold onto them,” he noted.
“They don’t want to go to market and sell them to another sponsor who can capitalise on all of their hard work.”
Instead, Pollock said they are putting them into a single-asset secondary vehicle or continuation vehicle and raising and forming capital around it.
“Giving capital back to the investors who don’t want to roll into that transaction and letting others kind of roll into the transaction.”
The growth of this GP-led segment is helping to drive the overall expansion of the secondary market, which is on track to set a second consecutive record for transaction volume.
“It didn’t really exist in that size or scope five or 10 years ago and now it’s nearly half the market.”
Between interval funds and tender offer funds, there are a variety of structures globally designed to open access to private equity.
“The PE1 trust in Australia is another example. All of these structures represent different attempts to take private equity, which historically was only accessible by large institutions – and deliver it to individuals in a scaled, economically-efficient and institutional quality way,” he said.
Pollock noted that while these vehicles are widely discussed, the capital flowing through them remains relatively small.
“I think everyone’s expectation is that if you fast forward five, 10, 15 years, these vehicles, or other ones like them that are specifically designed for individual investors, start to become a very meaningful part of the pie in terms of the overall capital base that private equity is supported by.”
He adds that although these structures differ, they aim to solve the same challenge: ‘how do I deliver institutional quality private equity to individuals who previously couldn’t access it?’
“Every year it’s a little bit more of a competitive market, it’s a little bit bigger. Things get more efficient, I would argue, as the market grows and competition increases,” Pollock said.
“The newer areas of activity, or the growing areas of activity, like single-asset secondaries and continuation vehicles, they are probably less mature, just because people are still figuring out that part of the market and it’s growing.”
Pollock says the LP side of the secondary market is now extremely efficient.
“When you go to sell an LP interest on the secondary market, you typically get a lot of different bids and its competitive. It’s almost a liquid market now.”
Meanwhile, he believes the single-asset space is still immature and has considerable room to grow.
