In 2007, faced with a liquidity squeeze triggered by the credit crisis that was just beginning, investors were sent scurrying in two directions. The first group looked to unload their private equity partnership interests on the secondary market before new capital calls came in. The second group, investors lucky enough to be sitting on cash, began the giant bargain hunt for newly unloaded funds. “We have chosen to focus on the secondary market opportunistically and have made fewer commitments to primary funds,” says Daniel Jick, CEO of HighVista Strategies, a $2.5 billion Boston-based endowment-style fund.

That year secondary interest transfer value set an all-time record of $20 billion, according to Richard Lichter, a managing partner at $1.3 billion secondary private equity fund firm Newbury Partners in Stamford, Connecticut. Prices averaged an 8 percent premium over net asset value.

Then a funny thing happened. Just when the secondary markets should have been soaring to new heights, a slowdown began. Both prices and deal volume dropped as the recession set in. By 2008 secondary sales floated back down to $15 billion. Unable to get the prices they sought for their private equity holdings, the largest cash-strapped limited partners that were overcommitted to illiquid investments — such as Harvard and Stanford universities in the U.S. and the U.K.’s Wellcome Trust — went into the bond market for cash, leaving their private partnerships in place. Meanwhile, small investors with no other recourse were forced into the secondary market with smaller transactions. The result: a bifurcated market. Prices dropped to an average 50 percent of net asset value by the close of 2009. “I’ve never seen it quite like this — two totally different markets,” notes Lichter.

Still, there are deals to be made, not to mention about $1 trillion in so-called dry powder, or uncalled capital to deploy when conditions improve, according to Prequin, a London provider of PE data. “We have taken advantage of this dynamic and purchased limited partnership interests for significant discounts,” says Jick. That’s smart shopping.