How the Pandemic Transformed the PE Secondaries Market

Allocators are increasingly drawn to the comfort of highly concentrated or single-asset funds whose managers and portfolio companies they already know and like.

Illustration by II

Illustration by II

Over the last two years, funds that hold only a few huge companies — often only one – have come to dominate the private equity secondary market.

These funds, called continuation funds or GP-led secondaries, allow general partners to hold onto what they believe are still-promising companies after a fund reaches the end of its life as well as raise new money from existing clients. In 2021, 44 percent of GP-led secondaries were invested in single-asset or highly concentrated continuation funds, up by 9 percentage points from the year before, according to private equity advisory firm Campbell Lutyens.

Investors have been gravitating towards single-asset funds in part because they can “dig deeper into assets and into the work that particular general partners carry out,” according to Gonzalo Erroz, partner at the U.K.-based manager Hayfin Capital Management. The pandemic made it harder for investors to conduct due diligence on larger portfolios. “In that context, the strategy of investing more through single-asset continuation vehicles with managers we already know and in companies we already know and like, is very attractive,” he noted in a report from Triago, an independent private equity adviser.

Even traditional secondary funds are focusing on fewer assets compared to the pre-Covid era. “Ascribe that to investors’ growing partiality for highly targeted investments at a time of heightened economic uncertainty tied to Covid-19,” the Triago report said.

Campbell Lutyens found that target internal rates of return for single-asset transactions increased by 2 percentage points.


The high return expectation for single-asset funds is due in part to the rise of the secondaries market as a whole during the pandemic. In 2021, the secondaries market reached $135 billion in value crossing the $100 billion milestone for the first time, according to Campbell Lutyens. Meanwhile, McKinsey reported that the average secondary traded at roughly 90 percent of net asset value. More than 88 percent of GP-led transactions and over half of investor-led transactions were priced at more than 95 percent of NAV.

It wasn’t a straight line up. The volume of secondary transactions dropped dramatically at certain points during the pandemic, according to Vish Apte, principal at Auldbrass Partners, a PE secondaries firm based in New York. Due to distressed valuations in the public market, “LPs were waiting for pricing to stabilize,” he told II. But the rebound of the stock market in 2021 injected a similar confidence into secondaries. As economies opened up and markets recovered there was strong demand from buyers and a good pipeline of high-quality deals.

Gerald Cooper, partner at Campbell Lutyens, told II that buyers of single-asset funds like the ability to customize deal terms. They have more flexibility, for example, to structure carried interest around specific cash flows generated by individual companies. “They can customize the deal to make sure that it’s really positioned for success,” he said. “And you can’t do that with a broader portfolio of assets.”

The single-asset deals are even “eating into the sponsor-to-sponsor transactions,” Cooper added. Previously, companies with good cash flow projections might be bought and sold three or four times across different PE firms. But now, “instead of changing hands, the GPs can create these SPVs [special purpose vehicles] and sell to themselves, give their LPs liquidity or the opportunity to roll into the SPVs, and continue to ride the upside with them,” he said. Critics say, however, private equity firms selling to themselves raises issues of transparency and GPs need to ensure the portfolio company is priced fairly.

GPs that aren’t yet in the secondaries market may find it difficult to find the right talent to lead single-asset offerings. Because such deals often involve mega buyouts, it is important to hire those “with a demonstrated track record in leading secondaries transactions at scale,” according to McKinsey. “The secondaries market is growing quickly, and adoption of single-asset funds effectively takes the ceiling off the market. Experienced talent may be the restraining factor on future growth.”