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For much of the past decade, secondary funds served as the default entry point into private equity for a number of wealth managers, registered investment advisors, and institutional allocators. These investment vehicles allowed investors to acquire exposure to a private equity fund by purchasing the interest of one of its existing primary investors.
The rationale behind such products was straightforward: Secondaries offered faster capital deployment, earlier distributions, and exposure to existing private equity portfolios rather than blind pool commitments. For advisors navigating the practical constraints of client capital, those features addressed real problems.
However, that consensus is beginning to shift. A growing number of allocators are questioning whether secondary funds, as currently constituted, still deliver what they were originally expected to provide and whether they are the most appropriate vehicle for building foundational private equity exposure.
Woodson Whitehead, CEO and principal of Green Square Wealth Management, a boutique multi-family office overseeing more than five billion dollars for over one hundred families and institutions, recently completed a review of exactly this question.
“When we first built out our private equity allocation, secondaries made a lot of sense,” Whitehead said.
“They gave clients a visible portfolio, faster distributions, and a clear way to get deployed without the pacing drag of a pure primary program. For a wealth management practice managing client liquidity expectations, that was a meaningful implementation advantage,” he added.
What Has Changed
The secondary market has undergone substantial structural change over the past decade, and those changes have materially altered the nature of the exposure it provides. Two developments are particularly significant: the rapid growth of GP-led transactions, and the compression of pricing across much of the secondary market.
GP-led transactions — primarily continuation vehicles in which a sponsor transfers select assets from an existing fund into a new structure — now account for a substantial share of secondary market activity. According to data from Jefferies, GP-led deals represented roughly half of global secondary volume by H1 2025.
While traditional LP-led secondary portfolios would typically consist of dozens of fund interests across managers and vintage years, GP-led deals tend to concentrate exposure in a small number of assets, chosen by the sponsor based on fund-specific considerations rather than broad market participation.
At the same time, increased capital flowing into secondaries has narrowed the discounts to net asset value that historically provided a meaningful cushion. Although pricing below NAV once offered downside protection and a structural return advantage at entry, that edge has largely disappeared in recent cycles.
Returns are now more dependent on the future performance of underlying assets, which increasingly share similar exit windows given the backlog of mature portfolios accumulated during a period of subdued exit activity.
“What we found when we looked carefully was that the diversification story had become less straightforward,” Whitehead said.
“You’re not necessarily getting broad exposure across the asset class anymore. In many cases you’re getting concentrated positions in assets that a GP has selected, at pricing that reflects what the market will bear, with additional leverage layered in. That’s a different risk proposition than what secondaries were originally supposed to represent,” he noted.
The Measurement Problem: IRR Versus Wealth Creation
One area where perception and reality have consistently diverged is performance measurement. Secondary funds frequently report strong internal rates of return, driven in part by their structural features.
Those include shorter holding periods that compress the time between deployment and distribution, as well as leverage at the fund level, which can further enhance reported figures. These are real contributors to IRR, but they do not necessarily translate into greater wealth creation.
Total value to paid-in (TVPI) capital, which measures the actual multiple of invested capital returned over the life of a fund, offers a different perspective. Analyses using data from Preqin and Burgiss show that across most vintage years between 2000 and 2020, the pooled return of the broader private equity market — approximated by the capital-weighted performance of the fifty largest funds in each vintage (which can be considered a proxy for the broader market) — has delivered higher TVPIs than the secondary fund median.
The gap reflects, in part, the longer holding periods generally associated with primary investing. As such, they allow managers to participate in the full cycle of value creation at the portfolio company level rather than acquiring positions partway through.
A return-to-dispersion analysis of private equity returns reinforces this point. When average vintage TVPI is divided by the standard deviation of returns across funds in each vintage, secondary strategies have historically delivered approximately six units of return per unit of cross-sectional risk. The pooled private equity return proxy delivers closer to nine. Secondary outcomes, in other words, have exhibited greater dispersion around a lower average, suggesting that the strategy is more selection-dependent than its reputation as a diversified, lower-risk approach might imply.
Reframing the Role: Beta Versus Opportunistic Allocation
For Green Square, the outcome of this review was a reconceptualization of how private equity exposure is structured. The investment committee drew a clearer distinction between systematic market exposure — what practitioners sometimes call private equity beta — and selection-driven strategies that depend on pricing, timing, and deal access.
“We came to think about it as a separation between what the asset class should deliver over time and what requires a specific call on managers or market conditions,” Whitehead said.
“Core exposure should be systematic and diversified, designed to approximate the pooled return of the market. Secondaries can still play a role, but it’s a more tactical one, for situations where specific conditions or opportunities justify a targeted allocation, not as the default foundation of the program,” he added.
In practice, this approach to systematic exposure has begun to take the form of index-based structures that aggregate commitments to some of the largest funds in each vintage year, seeking to replicate the capital-weighted return of the asset class rather than seeking alpha through fund selection. Proponents believe this approach reduces complexity, limits fee layering, and produces more consistent outcomes across cycles.
The Case for Secondaries: A Continuing Role
Not all allocators share this view, and secondary fund managers suggest that the critique conflates structural evolution with deterioration. They point to the continued advantages of the strategy in specific contexts: deploying capital quickly into known, mature assets; managing portfolio exposures when primary commitments run long; and capitalizing on market dislocation when sellers face liquidity pressure.
The rise of GP-led transactions, some argue, reflects genuine value for investors willing to underwrite individual assets with a high degree of visibility, rather than a broadening of risk in disguise. In periods where exit markets have been slow, continuation vehicles have provided a mechanism for extending high-quality asset exposure that would otherwise be difficult to replicate through primary commitments.
The debate, then, is less about whether secondaries work and more about the precision with which their role is defined. Used opportunistically, with clear parameters and a recognition of their current characteristics, secondary funds can remain a useful tool in a broader private equity program. The question being raised by a growing number of allocators is whether they should serve as its foundation.
An Industry at an Inflection Point
The broader context is one of maturation. Private markets have expanded significantly over the past two decades. With that expansion has come greater product differentiation, more sophisticated data, and a clearer ability to distinguish between strategies that offer systematic market exposure and those that require active judgement and selection to add value.
Secondary funds were, for a long period, one of the few viable entry points into private equity for allocators who lacked the scale or infrastructure to build diversified primary programs. That practical advantage has not disappeared entirely, but it has diminished as index-based structures and alternative access mechanisms have developed.
What is changing is the degree of scrutiny being applied to the assumption that secondary funds and private equity exposure are, for practical purposes, equivalent. They are not, and the evidence increasingly suggests that they have not been for some time. For allocators whose primary objective is broad, efficient participation in the private equity asset class over a full market cycle, that distinction matters.
Whether this reframing translates into a wider reallocation away from secondary funds as core holdings remains to be seen. But the question is now firmly in the conversation, and for many investment committees, it is prompting a more deliberate examination of what, precisely, their private equity allocation is designed to accomplish.
Francisca Grol and Matthew Chapman are both partners at NewVest, the private markets index manager.
To read the full white paper on this topic, please visit https://newvest.com/rethinking-core-holdings-for-a-private-equity-portfolio
The information herein has been presented for illustrative purposes only and is based on NewVest’s subjective beliefs and, among other things, current market conditions, all of which are subject to a variety of assumptions and risks that may prove to be inaccurate and therefore should not be viewed as predictions of future outcomes.
Data references in this article draw on NewVest analyses using Preqin and Burgiss data as of September 30, 2025, and Jefferies Global Secondary Market Review, H1 2025. Past performance is not indicative of future results.
Certain information has been obtained from third parties and there can be no assurance that any estimates, illustrations and/or projections provided by third parties, including with respect to investor investment allocations and other views related to the private markets, will ultimately prove to be accurate. Third-party statements and quotes are provided for information purposes only and reflect the views and opinions of the individual expressing them. Such statements do not necessarily reflect the views of NewVest and should not be construed as endorsements, guarantees, or representations of future performance. While NewVest believes such third-party sources to be reliable, it has not undertaken any independent review of such information and, therefore, does not make any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of any of the information contained herein (including but not limited to economic, market or other information obtained from third parties), and it expressly disclaims any responsibility or liability therefore.
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