Report: Capital Formation Transformation in the Secondary Market
Proliferation of Semi-Liquid Funds Is Driving Secondary Buyer Capacity
Participants in the private equity secondaries market have long highlighted a critical challenge: the market’s persistent undercapitalization. Enter the semi-liquid vehicle, a product designed to democratize access to private alternatives for the largely untapped retail investor channel. As the secondary market has grown in scale and popularity, asset managers have increasingly recognized that secondary strategies also meet the requirements of open-ended funds (diversification, high-velocity deployment, consistent distributions and cash recycling) and thus have been launching new products in the category that are gaining remarkable traction.
The Baird GP Solutions group delved into this topic further to identify the primary drivers of the proliferation of semi-liquid funds, highlight the key global platforms entering the space at scale, and forecast where we see this market scaling over the next 5-10 years. Today, semi-liquid vehicles with secondaries allocations maintain over $50 billion in AUM and we estimate this figure nearing $200 billion by 2034, resulting in tens of billions in annual secondary dry powder generated. With this expected capital formation, we believe the long-observed undercapitalization in this market will gradually soften as further growth in secondary market adoption, innovation and transaction activity takes hold.
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