Beyond the Basics Secondaries: A Primer

What Are Secondaries?

Secondary investments represent the transfer of a private equity interest from one investor to another. Secondary buyers purchase an investor’s commitment to a fund and effectively become a replacement investor as a limited partner (LP). 

The Anatomy of a Secondary Transaction

Primaries vs. Secondaries

A private equity primary fund commitment refers to an LP’s commitment of capital in a fund. This commitment provides the fund with the necessary capital to make investments in various companies.

In a private equity secondary fund commitment, a secondary buyer purchases a commitment to an existing private equity fund from the primary buyer or secondary seller — effectively becoming a replacement investor.

Secondary buyers gain immediate exposure to an existing, mature portfolio which may generate cash flow sooner than primary investments and which may help reduce risk by offering a diversified portfolio across various vintage years, industries, geographies or even general partners (GPs). 

Primary Fund CommitmentSecondary Fund Commitment
  • The life of the fund is approximately 10 years, with the option to extend one to two years
  • A fund with one strategy invests in 10-30 companies over a 4-5 year investment period
  • Primary private equity funds are illiquid
  • Investors generally have a "lock-up" period

  • The life of the fund is typically 10 years
  • A fund that makes secondary investments in funds of various strategies and vintages, with hundreds of underlying companies, over a 3-year investment period
  • Offers more near-term cash flow and shorter duration
  • Provides a mechanism for liquidity for an illiquid asset class
  • Offers investors the option to sell and transfer interest in a fund/asset to another investor

An Investor's Journey Across the J-Curve

A capital call, also known as a draw-down, is where the GP of a fund calls on LPs to supply a portion of the amount of capital that they committed at the beginning of the investment. The timing and amount are at the GP’s discretion and, once capital has been called, it is considered “paid-in capital.”

A capital distribution is cash (or securities) paid to an investor when the fund managers realize their investments in underlying companies. In the above graph, the capital distributed (starting in year four) shows the amount of cash or securities paid to investors. As the fund continues to perform, capital distributions tend to increase.

Quantifying the Benefits of Secondaries

Portfolio Benefits

For investors looking to optimize their portfolio strategy, secondaries may be attractive for several reasons.

J-Curve MitigationPortfolio/Vintage DiversificationRisk Reduction From Knowledge of Underlying Assets
Investments are purchased farther along in their life cycle, with the potential to reduce the negative impact of management fees and accelerating the pace and timing of distributions. Secondaries may provide investors with the ability to quickly diversify a portfolio by vintage year, investment strategy. industry sector and fund manager.When evaluating a secondary transaction, the portfolio companies can be carefully analyzed, reducing the "blind pool" risk associated with primary investments. 

Secondary Resilience & Risk-Adjusted Returns

Secondaries have historically generated attractive returns and low volatility versus other private market strategies. They have the ability to benefit from growth while capitalizing on wider discounts in volatile or distressed markets.

Dispersion Returns by Strategy
Vintage Years: 1979-2018, Ordered by Spread of Returns

Capital Is Distributed Earlier

Secondary funds tend to hold more mature investments than traditional private equity funds. Since private equity investments typically exhibit negative returns in the initial years due to management fees and other expenses, secondaries help investors avoid this stage of the private equity life cycle. And, because secondary funds usually come later in the investment cycle, distributions from exits may be sooner than primary funds. 

Percentage of LP Capital Distributed

Hamilton Lane Case Study

Life Cycle of a Secondary Fund

The following scenario illustrates a $1M commitment to Hamilton Lane’s 2008 vintage Secondary Fund (HLSF II).

Expected Cash Experience for Investors

  • Investors’ capital may be called down periodically during the investment period and should expect to have 80-90% of their commitment invested by years 3-4. 
  • The value of investors’ capital should grow over time and that value will be sent back to investors in the form of distributions, also known as realizations.

Secondary Market Overview

Secondary Market Evolution

Initially a niche strategy, secondary investments have become mainstream.

2023’s Secondary Market Outlook:

  • GPs are exerting more influence in the market.
  • The market dynamic provides flexibility for LPs.
  • 1H 2023 volume of $43M was down from $57M in 1H 2022, but recent momentum and smaller bid-ask spreads have market participants expecting full-year 2023 volume close to that of 2022 (>$100B).
  • Longer-term supply tailwinds are supported by continued LP/GP acceptance of the secondary market as a liquidity tool because:
    • There is widespread LP demand for liquidity and flexibility within their portfolios.
    • GP’s are looking to create alternative exit paths and additional avenues for investor liquidity.

Transaction Landscape

LP DealsGP Deals
Market Dynamics
  • LPs increasingly comfortable with transacting directly
  • High quality funds/GPs are selling more frequently than ever
  • One of the largest drivers of growth in the secondary market has been the increasing adoption of GP-led transactions, particularly by small and mid market GPs
  • GP-led deals have become a market accepted exit path for the strongest assets
  • Strong GP relationships are key to accessing the best deals
Supply Catalysts
  • Increasing NAV is reducing ability to deploy capital
  • Active portfolio management continues to be a main driver
  • Overallocation to PE due to both numerator and denominator effects
  • GPs proactively finding ways to get liquidity for their investors
  • GPs hold best performing assets longer, while accessing more unfunded capital to capture further upside
  • GPs are expanding and developing relationships with strategic LPs
Key Takeaways
  • Volatility will shift market from macro to micro, favoring those buyers who have a targeted approach
  • Motivated sellers will increasingly transact directly with secondary buyers that can offer certainty in an uncertain environment
  • GPs are looking to partner with buyers who possess both primary and secondary scale
  • Secondary buyers with primary platforms best positioned to identify and access deals with the strongest alignment

Secondary Market Volume by Deal Type

The secondary turnover ratio has consistently ranged from 1.0% - 2.0% for more than a decade

Why Do Limited Partners Sell in the Secondary Market?

LiquidityAllocation IssuesPortfolio Management
  • Achieve early liquidity
  • Permit investments in new funds
  • Reduce unfunded commitment balance

  • “Denominator effect”*
  • Reduce allocation targets (because declining public valuations and distribution timing can result in excess allocations)
  • Reduce overcommitment

  • Portfolio modification in response to strategic change or change in investment strategy
  • Lock in fund returns
  • Reduce duplicative exposure to a single fund, post-merger
  • Reduce number of GP relationships by selling older funds

*Source: Greenhill Secondary Market Update (January 2020)

Hamilton Lane Case Study

In this case study, you can see how Hamilton Lane manages relationships to execute deals and provide downside cushion through the strategic use of secondaries.


  • An LP wanted to sell a mature investment totaling $15.8M. In secondary transactions, pricing is expressed as a percentage of recent net asset value (NAV).
  • The LP restricted the offer to secondary investors with strong primary relationships with the GP, which limited competition among buyers.


  • Hamilton Lane’s GP relationship allowed us to purchase, as the secondary buyer, the fund position from the LP, or secondary seller.
  • Secondaries are often purchased at a discount to NAV, in this case 24%. This discount allowed us to buy $13M in NAV at $9.9M. 

Hamilton Lane’s Position

  • We received an immediate return of $3.1M, which also provided downside cushion.
  • Hamilton Lane will fund all future capital calls and receive future distributions.

As of November 8, 2023 unless otherwise noted.

This document has been prepared solely for informational purposes and contains confidential and proprietary information, the disclosure of which could be harmful to Hamilton Lane. Accordingly, the recipients of this document are requested to maintain the confidentiality of the information contained herein. This document may not be copied or distributed, in whole or in part, without the prior written consent of Hamilton Lane.

The information contained in this presentation may include forward-looking statements. Forward-looking statements include a number of risks, uncertainties and other factors beyond our control which may result in material differences in actual results, performance or other expectations. The opinions, estimates and analyses reflect our current judgment, which may change in the future.

All opinions, estimates and forecasts contained herein are based on information available to Hamilton Lane as of the date of this
presentation and are subject to change. The information included in this presentation has not been reviewed or audited by independent
public accountants. Certain information included herein has been obtained from sources that Hamilton Lane believes to be reliable but the accuracy of such information cannot be guaranteed.

This presentation is not an offer to sell, or a solicitation of any offer to buy, any security or to enter into any agreement with Hamilton Lane or
any of its affiliates. Any such offering will be made only at your request. We do not intend that any public offering will be made by us at any time with respect to any potential transaction discussed in this presentation. Any offering or potential transaction will be made pursuant to separate documentation negotiated between us, which will supersede entirely the information contained herein.

The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.

Hamilton Lane (UK) Limited is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (UK) Limited is authorized and regulated by the Financial Conducts Authority. In the UK this communication is directed solely at persons who would be classified as a professional client or eligible counterparty under the FCA Handbook of Rules and Guidance. Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients.

Hamilton Lane Advisors, L.L.C. is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services by operation of ASIC Class Order 03/1100: U.S. SEC regulated financial service providers. Hamilton Lane Advisors, L.L.C. is regulated by the SEC under U.S. laws, which differ from Australian laws. The PDS and target market determination for the Hamilton Lane Global Private assets Fund (AUD) can be obtained by calling 02 9293 7950 or visiting our website

Hamilton Lane (Germany) GmbH is a wholly-owned subsidiary of Hamilton Lane Advisors, L.L.C. Hamilton Lane (Germany) GmbH is authorised and regulated by the Federal Financial Supervisory Authority (BaFin). In the European Economic Area this communication is directed solely at persons who would be classified as professional investors within the meaning of Directive 2011/61/EU (AIFMD). Its contents are not directed at, may not be suitable for and should not be relied upon by retail clients.

More Education

For more educational content, visit our Knowledge Center.

We use cookies to improve user experience, and analyze web traffic. For those reasons, we may share your site usage with our analytics partners.

Learn More