Unlocking value through secondary funds: strategic insights for CEOs

Understanding the role of secondary funds in corporate strategy

How secondary funds fit into today’s corporate strategy

Secondary funds have become a key lever for CEOs navigating the evolving landscape of private markets. As companies and investors seek greater flexibility and liquidity, the secondary market for private equity has grown in both scale and sophistication. This market enables the buying and selling of existing fund interests, offering a dynamic way to manage portfolios, unlock capital, and respond to shifting strategic priorities.

Unlike primary investments, where capital is committed to new funds, secondary transactions involve the transfer of ownership in established funds or direct assets. This distinction is crucial for portfolio management, as it allows companies to:

• Rebalance their exposure to certain sectors or geographies
• Access liquidity without waiting for traditional exit events
• Optimize capital allocation across multiple investment vehicles

Leading players in the secondary market, such as Coller Capital and Morgan Stanley, have helped shape best practices and drive transaction volume. Their involvement has contributed to increased transparency, professionalism, and innovation in secondary transactions, including single asset and portfolio-led secondaries. As a result, the secondaries market now offers a range of solutions for companies seeking to enhance their investment management and strategic flexibility.

For CEOs, understanding the role of secondary funds is not just about liquidity. It’s about leveraging the secondary market as a tool for long-term value creation, risk management, and competitive advantage. This approach aligns with broader trends in private equity, where active portfolio management and creative capital solutions are increasingly critical.

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Key motivations for engaging with secondary funds

Why companies turn to secondary funds

Secondary funds have become an essential tool for CEOs looking to optimize their company’s private equity portfolio. The motivations for engaging with the secondary market are diverse, but they all center on maximizing value, managing risk, and enhancing flexibility in investment management. Understanding these drivers is crucial for any executive considering secondary transactions as part of their broader corporate strategy.

• Liquidity management: Secondary transactions offer a practical solution for companies seeking liquidity from illiquid private market assets. By selling fund interests or single asset positions, companies can free up capital for new investments or operational needs without waiting for the natural exit timeline of private equity funds.
• Portfolio rebalancing: As market conditions shift, companies may need to adjust their exposure to certain sectors, geographies, or fund vintages. The secondaries market enables efficient rebalancing of private equity portfolios, allowing for the sale or acquisition of fund interests to align with evolving strategic objectives.
• Risk reduction: Secondary investments can help mitigate concentration risk by diversifying across funds, managers, and asset types. This is particularly relevant for companies with significant exposure to specific private equity funds or single asset positions.
• Access to mature assets: Unlike primary investments, secondary transactions often involve more mature assets with established performance histories. This can provide greater visibility into future returns and reduce the uncertainty typically associated with early-stage private market investments.
• Capital efficiency: By leveraging the secondary market, companies can optimize the timing and allocation of capital. This flexibility supports more dynamic portfolio management and can enhance overall investment performance.

Recent years have seen a significant increase in transaction volume within the secondaries market, driven by both institutional investors and companies seeking to unlock value from their private equity holdings. Leading players in the space, such as Coller Capital and Morgan Stanley, have demonstrated how secondary funds can be used strategically to achieve liquidity, manage risk, and support long-term growth.

For CEOs aiming to leverage these advantages, it’s essential to understand how secondary investments fit within the broader context of private market strategy. For a deeper dive into how flagship funds can be used for strategic company growth, explore this resource on leveraging flagship funds for strategic growth.

Evaluating risks and opportunities in secondary transactions

Balancing Opportunity and Risk in Secondary Transactions

Secondary transactions in the private equity market offer companies a unique way to optimize portfolio management and unlock liquidity. However, CEOs must carefully weigh the risks and opportunities that come with these deals. The secondary market has grown rapidly, with transaction volume reaching new highs, driven by increased investor demand for flexibility and access to high-quality assets. Yet, not all secondary investments are created equal.

• Liquidity and Pricing: Secondary funds provide a path to liquidity for investors, but pricing can be volatile. Market dynamics, such as supply and demand for fund interests, can impact valuations. Mispricing can erode value, especially in less transparent segments of the private market.
• Portfolio Diversification: Engaging in secondary transactions allows companies to rebalance their portfolios, exit non-core investments, or gain exposure to new sectors. This can enhance risk-adjusted returns, but also introduces complexity in portfolio management. CEOs should assess how each secondary investment aligns with long-term strategic goals.
• Due Diligence and Transparency: The quality of information available in secondary transactions varies. Unlike primary investments, secondary deals often involve legacy assets with limited disclosure. Robust due diligence is essential to identify hidden risks, such as unfunded commitments or management issues within the underlying equity funds.
• Counterparty and Execution Risk: The secondary market involves multiple stakeholders, including fund managers, existing investors, and new buyers. Transaction execution can be complex, particularly in large or single asset deals. Delays or failed transactions can disrupt capital planning and impact company performance.
• Regulatory and Compliance Considerations: As the market matures, regulatory scrutiny is increasing. CEOs must ensure that secondary transactions comply with evolving standards in investment management and reporting, especially when dealing with cross-border assets or funds.

Leading secondary funds, such as those managed by Coller Capital and Morgan Stanley, have set benchmarks for best practices in transaction structuring and risk management. Still, every company’s exposure to risk will depend on its unique portfolio, capital needs, and strategic objectives. To maximize value, it’s crucial to integrate secondary investments into a broader portfolio strategy, supported by rigorous analysis and clear governance.

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Integrating secondary funds into long-term strategic planning

Building a Strategic Framework for Secondary Fund Integration

Integrating secondary funds into long-term corporate strategy requires a clear framework that aligns with your company’s vision and growth objectives. As the secondary market matures, private equity secondaries have become a vital tool for portfolio management and capital efficiency. CEOs should consider how secondary transactions can support both immediate liquidity needs and broader investment goals.

• Portfolio Optimization: Secondary investments allow companies to rebalance their portfolios, exit non-core assets, and focus on high-conviction investments. This flexibility is especially valuable in dynamic private markets, where market cycles and fund performance can shift rapidly.
• Capital Allocation: By leveraging the secondary market, management teams can redeploy capital from mature or underperforming assets into new opportunities. This approach enhances overall returns and supports a disciplined investment management process.
• Long-Term Value Creation: Integrating equity secondaries into strategic planning enables companies to access liquidity while maintaining exposure to high-quality assets. This can be particularly effective in single asset or led secondaries transactions, where targeted investments align with long-term business objectives.

Aligning Secondary Transactions with Corporate Objectives

To maximize the benefits of secondary funds, it’s essential to ensure that secondary transactions are not treated as one-off events. Instead, they should be embedded within the company’s ongoing portfolio management and capital planning processes. Leading investors in the secondaries market, such as Coller Capital and Morgan Stanley, have demonstrated that a proactive approach to secondary fund interests can drive sustainable value.

• Scenario Planning: Regularly assess how secondary market activity impacts your company’s risk profile and growth trajectory. Consider how transaction volume and liquidity events may affect future fundraising or investment cycles.
• Stakeholder Engagement: Communicate the strategic rationale for secondary investments to key stakeholders, including investors and board members. Transparency builds trust and supports alignment on long-term goals.
• Continuous Review: Monitor the performance of secondary transactions and adjust your strategy as market conditions evolve. This ensures that your approach to private equity funds and secondary investments remains agile and responsive.

By embedding secondary funds into your long-term strategy, you position your company to capture value across market cycles, enhance liquidity, and strengthen your investment management capabilities. The integration of secondary funds is not just a tactical move—it’s a strategic lever for sustained growth in the private market landscape.

Best practices for CEOs navigating the secondary market

Building a Robust Secondary Market Playbook

For CEOs steering companies through the evolving private equity secondaries landscape, a disciplined approach is essential. The secondary market is no longer a niche—transaction volume has surged, and both fund managers and investors are seeking more sophisticated strategies. Here are practical steps for effective navigation:

• Establish clear objectives: Define what your company aims to achieve with secondary transactions. Is it liquidity, portfolio rebalancing, or accessing new investment opportunities? Clear goals help align management and stakeholders.
• Engage experienced partners: Work with established secondary fund managers and advisors who understand the nuances of private market transactions. Their expertise can help you assess fund interests, price assets accurately, and structure deals that fit your company’s needs.
• Prioritize transparency and communication: Keep investors and internal teams informed about secondary investments and their impact on the portfolio. Transparent communication builds trust and supports smoother execution of secondary transactions.
• Leverage data-driven decision making: Use robust portfolio management tools to analyze your company’s exposure across private equity funds, single asset deals, and led secondaries. Data-driven insights can highlight risks and opportunities, supporting better capital allocation.
• Monitor market trends: Stay informed about shifts in the secondaries market, such as changes in transaction volume, pricing, and investor sentiment. Leading firms like Coller Capital and Morgan Stanley regularly publish market research that can inform your strategy.
• Integrate secondary investments into governance: Ensure that your board and investment committees are equipped to evaluate and approve secondary transactions. This includes understanding the implications for liquidity, asset management, and long-term value creation.

Fostering a Culture of Agility and Learning

The private markets are dynamic, and the secondary market is no exception. Encourage your management team to learn from each transaction, adapting processes and playbooks as the market evolves. Peer benchmarking, post-transaction reviews, and ongoing training can help your company stay ahead in the competitive world of equity secondaries. By embedding these practices, CEOs can position their companies to unlock value from secondary investments, manage risks, and capitalize on the growing opportunities in the private equity secondary market.

Measuring the impact of secondary funds on company performance

Tracking Performance Metrics in Secondary Investments

Measuring the impact of secondary funds on company performance requires a clear understanding of both quantitative and qualitative metrics. Unlike traditional private equity investments, secondary transactions offer unique liquidity and risk profiles. CEOs and their management teams should focus on the following areas to assess the real value added to their portfolio:

• Liquidity Enhancement: Secondary market transactions often provide earlier liquidity compared to primary private equity funds. Monitoring the reduction in illiquid assets and the acceleration of capital returns can highlight improvements in portfolio management.
• Portfolio Diversification: By acquiring fund interests or single asset secondaries, companies can diversify across vintage years, sectors, and geographies. Tracking changes in portfolio concentration and exposure helps evaluate risk mitigation.
• IRR and MOIC Benchmarks: Internal Rate of Return (IRR) and Multiple on Invested Capital (MOIC) remain core metrics. Comparing these figures for secondary investments against primary fund investments and market benchmarks, such as those published by Coller Capital or Morgan Stanley, provides a performance baseline.
• Discount to NAV: Secondary transactions are often executed at a discount to Net Asset Value (NAV). Monitoring the average discount achieved across transactions can indicate the effectiveness of negotiation and timing in the secondaries market.
• Transaction Volume and Execution Speed: The ability to deploy capital efficiently and at scale is a competitive advantage. Tracking transaction volume and time-to-close for secondary deals can reveal operational strengths or bottlenecks in investment management.

Qualitative Impact and Strategic Alignment

Beyond numbers, CEOs should assess how secondary investments align with broader strategic goals. For example, have secondary transactions enabled the company to exit non-core assets, rebalance the portfolio, or respond to market shifts more nimbly? Regular reviews with investment and portfolio management teams can surface insights on how secondary funds are supporting long-term value creation.

Reporting and Transparency

Transparent reporting is essential for building trust with investors and stakeholders. Leading companies in the private markets space provide detailed breakdowns of secondary fund performance, including realized and unrealized gains, capital returned, and ongoing commitments. This level of disclosure supports better decision-making and reinforces the credibility of the company’s secondary investment strategy.

Continuous Improvement

Finally, measuring impact is not a one-time exercise. As the secondary market evolves, so should the metrics and processes used to evaluate success. Regularly benchmarking against industry leaders in equity secondaries and incorporating lessons learned from each secondary transaction will help CEOs and their teams refine their approach and maximize value from secondary investments.