The rise of secondaries

GP-led secondary activity doubled in the latter half of 2023, indicating a growing trend likely to continue. Frewen Lam, Managing Partner, discusses the secondary market and the prominent emergence of continuation vehicles, both domestically and globally, reflecting a strategy aligned with ongoing market uncertainty and the desire to capitalise on assets’ growth potential.

With the market landscape marked by prolonged exits and considerations of risk and liquidity, GPs prefer retaining assets with promising growth trajectories until favorable pricing is established, providing existing investors the option to either exit or hold onto their investments.

Frewen Lam: The second part I'll touch on is really what we've seen in the secondary market. It's quite interesting, Mike touched on some of the psychology around buying and selling around liquidity. LPs are still looking for liquidity. GPs are still finding ways to generate that liquidity. And if you are in the world of direct secondaries, we talk about holding winners or trophy assets. If you think about assets that would've come up for sale last year, bids coming in below expectations, the sellers in those positions would've been thinking, geez well we couldn't get it out, we've got a benchmark price here, we actually think there's a lot of growth potential, further growth potential in these assets. Let's start a GP process that gives our existing LPs an option to generate liquidity if they want that. And so some of the stats that we saw recently, some doubling GP led secondary activity in the second half of last year compared to the same prior year period. I expect there'd be a continuation of that style of activity going forward as well.

Anna Ellis: And so, you just used the word continuation, but what you're talking about there is continuation vehicles, and I know we've seen a lot of them and really good ones here domestically. And so has that been playing out globally as well?

Frewen Lam: Yeah, I think Mike had touched on this ongoing uncertainty in the market environment. And I think if you have a view that there is uncertainty, there are only so many good assets in in the world. People have ongoing views around how they view risk and liquidity. We talked about sort of prolonged exits last time. It makes a lot of sense.
GPs don't necessarily want to sell their assets to another party if they view those assets as having continued runway in their growth potential. So, once they're able to establish a price that works, giving existing investors that option to take liquidity if they want it or they can continue to hold those assets.