Secondary markets overtake IPOs for liquidity

Over the past decade, secondary markets have transformed from a stigmatized niche into a fundamental pillar of venture portfolios, reflecting a broader trend of private markets adopting public market mechanisms. This evolution has been driven largely by the elongation of private company lifecycles, which has intensified pressure on early investors and founders to realize returns earlier, prompting the rise of founder secondaries and more nuanced incentive structures. As one analyst observed, "secondaries used to be almost a dirty word and now it's a core part of every venture portfolio," underscoring the normalization of liquidity solutions within private equity and venture capital.

By 2025, secondary markets had matured into a $240 billion global ecosystem, serving as a critical liquidity release valve amid constrained IPO and M&A windows and longer fund durations. This expansion was characterized by three dominant structures—LP-led deals ($117 billion), GP-led continuation vehicles ($115 billion), and direct secondaries exemplified by OpenAI’s landmark $6.6 billion tender offer at a $500 billion valuation. These mechanisms have become standard for elite private companies like SpaceX and Stripe, effectively substituting traditional exit routes and enabling ongoing talent incentives while companies remain private.

Despite representing only about 2% of the $10 trillion private equity industry as of early 2026, secondary markets are poised for significant growth and diversification across asset classes including real estate, credit, and infrastructure. Innovations driven by platforms like Carta and the prospect of 401(k) investments into private equity and crypto signal a democratization of access to private assets, opening vast new investment opportunities. However, this expansion carries inherent risks, as some approaches remain untested and the balance between liquidity and investor protection continues to be debated.

Secondary markets have surged to rival IPOs and acquisitions as primary exit routes for venture investments, with transaction volumes doubling since 2021 and accounting for 31% of primary venture activity in 2025. Notably, pricing dynamics have shifted dramatically—from trading at an 80-cent discount to commanding a 106 premium—reflecting heightened demand and liquidity. High-profile companies such as Anderal, Anthropic, and SpaceX dominate these transactions, underscoring the central role secondaries now play in venture capital’s liquidity landscape.

By early 2026, engineered liquidity solutions such as secondaries, continuation vehicles, and structured liquidity programs have evolved from mere stopgaps into foundational infrastructure within private markets, fundamentally redefining the concept of an 'exit.' With mega-private companies like SpaceX, OpenAI, and Anthropic collectively valued near $2.9 trillion, traditional IPOs have become insufficient to absorb the sheer volume of tradable stock, pushing general partners to prioritize crafting cash outcomes through innovative liquidity mechanisms rather than merely accessing capital.

The IPO’s dominance as the primary exit route has sharply declined, accounting for just 5% of exit volume in 2025, which has accelerated the rise of secondary markets and mega-tenders as preferred liquidity pathways. Secondary assets under management have surged fivefold since 2012, growing 84% relative to 2021, while mega-tenders—multi-billion-dollar direct liquidity offers from companies like OpenAI and SpaceX—enable investors and employees to access cash without the volatility or regulatory hurdles of public listings, signaling a profound shift in exit dynamics.

Continuing this diversification, venture capital has increasingly adopted sophisticated private liquidity structures borrowed from private equity, including preferred equity solutions, NAV loans, and notably, continuation vehicles (CVs), which have ballooned to $110 billion in the past year. While CVs offer LPs options to either roll over economics or seek liquidity, their complexity and potential misalignment of incentives—such as GPs using CVs to obscure underperforming assets—require careful navigation, especially given the extended six-to-nine-month timelines and operational demands involved in structuring these deals.

Manufacturing liquidity through these engineered solutions has become a critical determinant of venture fund success, with funds employing continuation funds and secondary sales achieving exceptional performance metrics—such as a 2021 vintage growth fund delivering over 200% DPI and IRRs between 50% to 100%. This trend reflects a broader transformation where venture managers increasingly resemble lower middle-market private equity firms, relying on multiple secondary transactions to exit investments. Conversely, funds that fail to manufacture liquidity risk severe underperformance, as illustrated by a firm that missed realizing a 4x return due to holding onto depreciating SPAC investments, underscoring that liquidity engineering is now central to attracting capital and driving superior returns.

By early 2026, the venture capital secondary market had matured significantly, marked by an explosion of secondary funds led by emerging managers promising quick exits within three years, though the predictability of such outcomes remained questionable. This maturation mirrors the broader evolution seen in private equity, where firms like Thrive, General Catalyst, and A16Z expanded beyond traditional venture and growth investing into diversified asset management roles, signaling a structural shift from episodic liquidity events to more programmatic, repeatable distribution pathways.

The secondary market's rapid growth to an estimated $233–240 billion in 2025, surpassing IPO volumes by a factor of five, reflects fundamental structural changes including longer private company lifecycles, intensified LP distribution pressures, and constrained IPO/M&A windows. This expansion has diversified transaction types into LP-led deals, GP-led continuation vehicles, and direct secondaries like OpenAI’s $6.6 billion tender offer, each addressing distinct liquidity and governance challenges. However, the rise of GP-led continuation vehicles—now approaching half of secondary activity—has introduced complex governance and conflict-of-interest concerns, elevating the importance of pricing fairness and alignment signals among stakeholders.

Despite its impressive scale, the secondary market remains concentrated among roughly two dozen legacy firms dominating since the 1990s, with dry powder sufficient to absorb just over one year of market supply—significantly less than the buyout space’s 3 to 5 years—highlighting capital constraints that temper its growth potential. Moreover, secondary activity is cyclical, driven by liquidity needs during crises, active portfolio management, and a recent emphasis on distributions to paid-in capital (DPI), underscoring that while the market is maturing, it still represents only about 2% of the primary private equity market and retains substantial room for evolution.

LP-led secondaries have experienced record growth, breaking the $100 billion barrier in 2025 and projected to reach $150 billion in 2026, driven by a strategic shift from reactive crisis-driven liquidity to proactive portfolio management amid persistent LP overallocation to private equity—estimated at 40%. As Jan Rabat and Pauline Wetter note, this structural rebalancing, coupled with the enduring liquidity constraints of tens of thousands of private companies held in portfolios, ensures that engineered liquidity solutions are not a passing trend but a long-term fixture in private markets, demanding sophisticated governance and risk management from CFOs, GPs, and LPs alike.

By 2025, Europe's secondaries market reached record transaction volumes, fueled by both LP-led and GP-led deals that reflect a maturing and increasingly liquid environment. Leah Lazarek Calver highlighted how GP-led secondaries have become a strategic tool amid subdued M&A activity, allowing GPs to retain high-quality assets while providing distributions to investors, signaling a sophisticated approach to portfolio management distinct from but complementary to U.S. practices.

European secondaries have evolved with a more pragmatic seller mindset over the past decade, aligning closer to U.S. behavior where LPs willingly accept discounts to free capital for reallocation. Nick Marandi noted Europe's market is more mid-market oriented with a unique seller composition, yet it holds significant weight in global secondary allocations, underscoring its growing importance despite structural differences.

The private credit secondaries market, comprising about 10% of the overall secondary market as of 2025, is in an early but accelerating growth phase driven by GP-led continuation vehicles and record fundraising. While private credit's large capital base and yield-producing nature make it well-suited for semi-liquid and retail wealth vehicles, its pricing sensitivity—especially in senior secured assets—suggests potential cyclicality not yet observed but worth monitoring.

Venture secondaries are emerging as a distinct and rapidly expanding segment, poised to approach a $100 billion market given the roughly $3 trillion in unrealized global venture fund value. Unlike traditional secondary deals often marked by discounts, top-performing venture secondaries have commanded premiums for exposure to high-growth companies. However, Europe's growth in this space is hampered by regulatory constraints and a less dynamic tech ecosystem, limiting the availability of attractive secondary opportunities compared to more vibrant markets.

By mid-2026, private equity fundraising dynamics have been reshaped by the rapid acceleration of sponsor fundraising and ballooning fund sizes, which have strained capital deployment capabilities for investors. This pressure has catalyzed the expansion of innovative capital solutions such as continuation vehicles (CVs), now a mainstream exit strategy attracting dedicated capital from traditional investors and family offices eager to lead these high-performing asset investments. Concurrently, fundraising diligence has evolved to emphasize rigorous 'fun math' modeling—assessing fund size, portfolio construction, ownership targets, and reserve strategies—to ensure practical viability, especially for smaller or earlier-stage funds.

HSBC Asset Management's launch of a $1 billion NAV Financing Partnership Strategy in June 2026 exemplifies the growing institutional appetite for structured capital solutions that provide fund-level liquidity. Targeting senior secured loans linked to private equity portfolios across Europe and Asia, this strategy—managed in partnership with HSBC Bank plc—focuses on mid-market managers and aims for investment-grade rated facilities adhering to ILPA disclosure standards. Designed to attract insurance companies and pension funds, HSBC plans to keep the vehicle open through 2027, signaling confidence in NAV financing as a scalable, risk-adjusted return vehicle.

Reflecting evolving LP behaviors, BCI's July 2026 introduction of a capital solutions strategy targeting returns through secondaries and continuation vehicles underscores a cautious yet growing direct investor participation in these structures. While direct LP involvement in CVs and secondaries remains the exception, not the norm, BCI's initiative provides a structured pathway to capitalize on this nascent trend, highlighting a broader industry shift toward innovative capital deployment mechanisms discussed at major events in London and New York.

The broader private markets landscape in mid-2026 reveals a sophisticated embrace of capital solutions innovation, with NAV financing partnerships becoming a cornerstone for fund-level liquidity and follow-on investments amid slower exit environments. Sponsors increasingly deploy strategic capital tools—ranging from NAV loans at both fund and GP balance sheet levels to liability management transactions and capital call securitisations—to navigate liquidity constraints and optimize portfolio management. This convergence of fund finance and structured finance, exemplified by emerging instruments like collateralized fund obligations and rated note feeder funds, is accelerating as banks seek regulatory capital relief and balance sheet efficiency, a trend expected to persist through 2027 and beyond.

By mid-2026, manufacturing liquidity through secondary market strategies has become indispensable for venture funds aiming to boost DPI and IRR, especially as traditional exit routes like IPOs wane in dominance. Large platforms now dedicate entire teams to this practice, recognizing that funds neglecting liquidity manufacturing risk underperforming peers and losing LP confidence, as illustrated by a fund that failed to sell SPAC holdings before their collapse, dropping from a 30% net IRR to 0.8x with no DPI. This shift underscores a new paradigm where active secondary market engagement is not optional but essential for sustained fund success.

Secondary market innovations such as continuation funds and secondary sales have demonstrated remarkable performance enhancements, with some 2021 vintage growth funds achieving over 200% DPI and IRRs between 50-100%, outcomes unattainable through natural exits alone. These figures highlight how engineered liquidity solutions can unlock value even in challenging market vintages, reshaping expectations around fund lifecycle management and returns.

Simultaneously, the convergence of fund finance and structured finance is revolutionizing liquidity provision in private markets by leveraging securitisation techniques to broaden funding sources and improve capital efficiency. By July 2026, banks securitising portfolios of capital call facilities—either through cash transfers to SPVs issuing tranched notes or synthetic credit risk transfers via derivatives—are achieving regulatory capital relief and balance sheet optimization. This trend, gaining momentum, is expected to expand beyond 2026, fundamentally enhancing liquidity availability and risk distribution across the private capital ecosystem.