How liquidity solutions for equity investors are evolving.
The evolution of the secondary market for shares in private companies has become a focal point for equity investors seeking to access or exit a traditionally illiquid asset class. As capital commitments in private markets continue to rise, investors are increasingly looking for structured solutions that enable them to realize value without waiting for an exit event. This shift is driven by changing investor demands, regulatory developments and the rise of sophisticated financial structures designed to provide alternative paths to liquidity.
Private equity and venture capital have long been characterized by extended holding periods, often spanning up to a decade before an exit via an initial public offering or trade sale materializes. This has presented challenges for limited partners (LPs) who may need liquidity before a fund reaches maturity. General partners (GPs) managing funds have also faced pressure to deliver interim liquidity solutions to their investors while maintaining their investment thesis. The result has been a surge in interest in secondary markets, which allow investors to buy and sell shares in a private company or fund interests before an exit event.
One of the most significant developments in the secondary market has been the emergence of continuation funds. These vehicles allow private equity firms to extend their ownership of high-performing assets (and sometimes underperforming assets) by rolling them into a new fund, often capitalized by secondary investors. This structure provides liquidity to LPs while allowing GPs to retain control of assets they believe still have growth or turnaround potential. The rise of continuation funds has been particularly pronounced in recent years, reflecting a broader shift towards flexible fund structures that cater to evolving investor needs.
Beyond continuation funds, direct secondary transactions have gained traction as investors seek to acquire stakes in high-growth private companies from existing shareholders. This demand has been fuelled by the extended timeline of private company exits, particularly in the technology and biotech sectors where companies often remain private for longer. Employees, early-stage investors and venture capital firms looking to rebalance their portfolios have turned to secondary sales as a means of monetizing their holdings without waiting for an IPO or trade sale. Platforms facilitating these transactions, such as PrimaryMarkets, have emerged, providing greater transparency and price discovery in what was once a highly opaque market.
Institutional investors have played an increasingly prominent role in the secondary market, recognizing the opportunity to gain exposure to high-quality assets at potentially discounted valuations. Pension funds, sovereign wealth funds and family offices have ramped up allocations to secondary investments, leveraging their long-term investment horizons to capitalize on the liquidity needs of other participants in the private markets. This has led to a more sophisticated and structured approach to secondary transactions, with investors utilizing data-driven pricing models and innovative deal structures to optimize their exposure.
The growth of the secondary market has also been supported by the rise of technology-driven platforms that streamline transactions and improve market efficiency. Digital marketplaces have introduced greater standardization, allowing investors to trade private company shares with increased confidence. These platforms facilitate price discovery, reduce transaction friction, ensure transaction execution security and provide a more liquid marketplace for private assets. The adoption of blockchain technology and smart contracts will potentially further enhance transparency and security in private market transactions.
Regulatory developments have played a key role in shaping the evolution of the secondary market. While private securities often remain subject to transfer restrictions, regulators in various jurisdictions have explored reforms aimed at enhancing liquidity while maintaining investor protections. The U.S. Securities and Exchange Commission (SEC) has signalled an openness to revisiting rules around private market liquidity, particularly as more retail investors gain exposure to private assets through alternative investment vehicles. In Europe and Asia, regulatory frameworks are evolving to accommodate secondary trading, with some jurisdictions taking a more progressive stance on enabling greater liquidity in private markets. In Australia, the Australian Securities and Investments Commission (ASIC) has recently released a wide-ranging discussion paper entitled “Australia’s evolving capital markets: a discussion paper on the dynamics between public and private markets”. As a broad fact-finding mission, this discussion paper seeks engagement from participants in Australia’s capital markets regarding important issues and implications arising from evolving changes in Australia’s capital markets.
Despite the growing sophistication of the secondary market, challenges remain. Valuation remains one of the most contentious issues, as private company shares lack the daily pricing transparency of regularly traded public equities. The discrepancy between buyer and seller expectations can lead to prolonged negotiations, particularly in volatile market environments. Additionally, legal and contractual complexities surrounding transfer restrictions, especially where pre-emptive rights or other restrictions on transfers are applicable, can introduce hurdles that complicate transactions. As the market matures, standardized frameworks and improved data analytics are expected to mitigate some of these challenges, fostering greater efficiency and liquidity.
Looking ahead, the secondary market for private companies is poised for continued expansion as investor appetite for liquidity solutions increases. The next phase of growth will likely be driven by increased participation from a wider range of investors, further innovation in transaction structures and enhanced regulatory clarity. The convergence of technology, data analytics and regulatory evolution will create a more dynamic and accessible secondary market, enabling investors to manage liquidity with greater flexibility.
For investors, the secondary market presents an attractive avenue to gain exposure to quality private assets while providing liquidity solutions to counterparties. Whether through continuation funds, direct secondaries, or structured transactions, the private markets’ evolution is reshaping the way private capital is managed and allocated. As liquidity solutions continue to evolve, private equity investors will need to stay ahead of emerging trends and market dynamics to capitalize on the opportunities within this rapidly growing segment of alternative investments.
PrimaryMarkets
For companies and managed funds that are not listed on a stock exchange, the PrimaryMarkets trading Platform is an ideal way to facilitate the off-market sale of shares in your company and units in managed funds.
PrimaryMarkets is a flexible and evolving Platform that responds in real time to an ever-changing investment environment. In doing so, it provides sophisticated investors with access to companies that are shaping the future in a wide variety of industries and sectors. We provide access to opportunities previously only accessible to institutional investors. In addition to trading, PrimaryMarkets helps companies raise capital from our global investor database.
PrimaryMarkets exemplifies how innovation can transform the way we invest, trade and raise capital by breaking down traditional barriers, providing liquidity solutions and promoting transparency.
As the Platform continues to grow and evolve, it promises to unlock even more opportunities for investors and companies shaping the future of economies.