How secondaries are reshaping fund operations

0:01The private capital secondary market is the main provider of liquidity to a private market ecosystem that is, by design, illiquid. For many years, this requirement for liquidity was discrete and sporadic, but during the last decade, the dynamic has fundamentally changed. Secondary volume hit an all-time high in the first half of 2026, and annual transaction value has increased more than six-fold during the last decade, according to Evercore figures. A slowdown in distributions has undoubtedly contributed to the rise in transaction flow, but secondary's growth is driven by much more than just near-term liquidity pressures.

0:38In this episode, sponsored by Altadomus, I sit down with the firm's North America head of private equity, Patrick Krejci, to discuss the long-term structural themes behind the growth of the secondaries market. We take a detailed look under the hood at the operational mechanics required to take full advantage of the flexibility a growing secondaries industry offers GPs and LPs alike. I'm Nicholas Nevelling, and this is Private Equity Spotlight.

1:12We're talking secondaries today. It's been this market that's gone through this incredible growth trajectory over the last 10 years, and it just seems to be breaking records every time half-year numbers come out. To what extent is this growth a reflection of the current liquidity pressures that we see, across private markets or are we seeing secondaries becoming a permanent established part of this kind of private markets ecosystem? I think it is a permanent structural change that will continue to evolve. Really, it's just the evolution and maturation of the private markets. But worth taking maybe a broad view first and just thinking about secondaries are growing because the market's just finding ways to separate decisions that used to be tied together.

1:57Liquidity no longer has to means selling an asset. Continuation vehicle can give some LPs an exit while allowing the GP and other investors to stay invested. And you're seeing that with just the GP-led volume rising significantly in the first half of 26. One asset can now support several capital choices. I mean, that's what we're thinking about. And when we're talking with clients is continuation vehicles, and now financing, preferred equity, other structured solutions just really let managers change who owns the asset and how it can be financed and how long capital stays invested. And so all these different levers that in the past seemed fixed, now all seem like these are options that they can take advantage of and well-documented through a lot of the literature that's been presented by Evercore and others that are kind of following the space.

2:41So I think there's a real argument now also to think about what is the average fund's life? And increasingly, it's, is that the right fit for the assets that are in the portfolio? Is the 7-10 year hold period really the new normal as opposed to maybe the 4-7 in the PE space that traditionally kind of was the benchmark years back? So these are all things that managers and our clients are talking about to think about ways to, again, look at the assets that they're holding, retain maybe the asset for a new phase of growth that maybe they didn't think about doing years and years and years ago. It's so interesting that secondaries are no longer just this emergency red button when there's a liquidity gap and we need something to solve a problem.

3:27I'm dating myself here. But in 2008, many can think about just the financial crisis and what a lot of endowments, pensions, other institutional investors had what was called a denominator effect. Where their public portfolio, again, their entire portfolio was under duress. It forced the sales of PE assets, other alternative assets. And you saw significant discounts to purchase prices. It really was the burgeoning and beginning early innings of the secondaries market. And at that point in time, it was, oh, this is just a last resort. You don't want to be necessarily associated with secondaries because it might have been tied to just a distressed seller.

4:12but now as you said i think as as markets and all of the buyers and sellers within the pe space have matured it really is just saying hey i'm an endowment i'm looking at my entire portfolio not necessarily in a distressed scenario but just looking at it year over year looking at targets and thinking about where i want to be what liquidity challenges do i have just outside of my portfolio and using it as a portfolio management tool and so that's where again you're starting to see investors come into play where you've got buyers and sellers that are meeting one another to think about their varying needs, whether it's liabilities for the endowments to pay or secondaries, providers that are launching new products that have plenty of fresh capital to deploy.

4:57And so again, I think that phenomenon from 08, where it might've had a negative connotation, it really is now just market normalcy, if you will, that institutional investors are just looking to reshape and manage their larger portfolio. So let's move into some of the practicalities. We've sketched the headline case for secondaries, why it's important, why it's growing. I imagine if you're a manager, there's sort of operational requirements that you need to be able to deliver if you're going to play in this market. And I guess there are two groups that we can discuss through this conversation. The first are the managers who may be launching CVs for the first time, and then secondary specialists who are actually funding these transactions, making decisions and launching new secondary strategies.

5:44So let's start with the first of those groups. Hypothetically, say I'm a primary GP manager. I've never done a continuation vehicle before. I'd like to do one for the first time. What do I need to be thinking about from an operational perspective that I haven't considered before? And what are some of the mechanics that will be different to what I've experienced when I've been managing a platform of closed-end 10-year funds. The first thing we think about is just the information flows of the existing fund in the new vehicle, because ultimately you are not just going to remove the incumbent vehicle that's holding the asset today.

6:24More times than not, the existing vehicle will still live on, maybe in a different form, different format. And then obviously the CV is just a separate, distinct legal entity that will have its own reporting needs. And more times than not, again, those vehicles that are being created, these CVs, tend to be very unique. The LP perspectives, the underlying type of asset, all are very, very unique. And so the terms associated with that can be very different. I kind of joke with folks that no two CVs are alike. Yes, they're similar, but ultimately the asset really dictates terms, structuring, and timing of transaction.

6:59From a CFO finance perspective, understanding carried interest in GP economics. That will be one of the first things that legal counsel, the LPAC, when they start thinking about the formation of a CV is making sure the alignments of everyone are kind of equitable. And so carried interest, understanding those terms, even management fees potentially in the new CV vehicle, thinking about how that would be structured. And then ultimately just the LP allocations. It is a distribution after all, even though maybe a different type of distribution. So it is a meaningful event in the incumbent fund to ensure that we're prepared and firms are thinking about, well, maybe there's a cash component.

7:38There's a part that's rolling over non-cash. Are there deferred components? So there may be money today, but a year from now, there may be some other type of consideration. I think all of that is super, super important. And it's just the process, I think, of handling the investor elections. Some clients may have a 14-day window to send something out to their investors to say, do you want to roll? Do you want to exit? And so a lot has to happen in a very short period of time. And once that deal closes, it's okay. We've got to now effectuate cash. We've got to stand up the new entity. The new entity has an audit.

8:13The incumbent entity will still have all the operational needs, particularly if there's a deferred component later on. So those are all things we think about and more importantly, what our CFOs are asking us. So just referencing some of that experience that you've accumulated working with your clients through this recent growth phase of CV volume, where do you see primary managers underestimating the workload that comes with the CV? The amount of work that we see CFOs and their finance team do way before that PDF goes out to the pension fund or the investor base to say, please tell me what you want.

8:51So let's just say it's Q1 of the year. And they're telling us, hey, by year end, we think we're going to be exiting three of our portfolio companies via a CV transaction. And so all of a sudden in that Q1 timeframe, start of the year, scenario analyses, the types of ad hoc requests that the CFOs are getting, and some of the LPs, frankly, directly asking. So what we've done a lot of times is, okay, there are specific investor allocations, deal allocations that we should be putting in, I'll call it our normal delivery, and getting ahead of that. So that cadence of information starts a lot sooner.

9:26And I think the firms and clients that have reached out to us proactively and engaged us to say, this is coming. Let's start thinking about the information we know the LPs are going to want. I don't want to call it a playbook, because again, every type of transaction is differently, but it's having that strategic conversation with our clients to say, what are you doing? We know you may just have a simple distribution for one portfolio company, but let's get ahead of all of the investor allocations, investor questions. You're going to have more LPAC meetings. You're going to have more questions around what the existing LPA has around economics, carry, management fees, all that we can provide because we're tracking all that in our GL and our systems.

10:07We can get the information into the CFO's hands in Q1, going back to my example, as opposed to just throwing it to them in October and you've got four weeks to kind of run and sprint. But I would also just say there's an operational view that we have, I'll call it with our clients, where we're just thinking about how the CV will be going forward. And I can think of an example last year where a client had, they probably had six different assets from four different vintage funds roll into a brand new vehicle. And so just think about all the combinations, permutations, okay? So all those entities, the incumbent entities, I'll call it, had unique LPAs.

10:47Each of the LP bases in all of those funds, totally different. Just think about all the investor elections, percentages, and changes that are going to occur throughout the process. And again, I kind of joke with some of the CFOs. I say, well, you have a V1 of your kind of working capital close file, but the reality is you're not going to know the final close allocations until you get those elections actually signed. Certainly, they all work with their legal counsel and LPs to have a proxy, but that's what I tell a lot of our CFOs that we work with is, you don't know the final amounts until the last piece of paper comes in from the LP base to say, I want to roll or I want to cash out.

11:29So investor elections, I think that's just something to put a bow on it where we see a lot of the challenges that are maybe underestimated from our clients. Let's move things on from the primary managers who are doing CVs to the asset manager or the GP that would like to add a secondary strategy to their portfolio. We see this happening all the time. It's a gray market. People naturally see an opportunity to launch new businesses in this area. Similar kind of question. What is the sort of operational infrastructure they require if they want to deploy a secondary strategy on their platform? Sure.

12:05Sure. I think with secondaries and really any other limited partnership stake strategies, An LP interest could be holding private credit, private real estate, private equity. The complexity lies in the data. We're responsible for tracking all the underlying capital flows from these underlying managers, the valuations. So from a credit side, it could be a monthly valuation or monthly in their real assets. And for PE, it may be more quarterly and thinking about all those allocations. And so the volumes in reporting across hundreds and sometimes thousands of underlying fund investments, that presents for some of our clients that are new to the space, a pretty big operational challenge.

12:44So more clients are really looking for connected accounting, and I'll call it investment book of records systems that really can track performance, specific things to the secondaries market, like unfunded commitments, exposure, and other key metrics that need to be readily available so they can monitor their portfolio and think about their investment decisions and how they're deploying capital. And so I think about even just in our GL systems, particularly for secondaries, tracking certain, I'll call it codes or fields, project names and infos, all of that tagging, super, super important, whether it's in the GL or if it ties into, again, an asset manager's existing taxonomy of how they're classifying deals.

13:31Let's just go into more detail if we can. just with respect to things like capital calls, distributions, cash forecasting. It must get really complicated when suddenly you've got a whole portfolio of secondaries assets on your platform. Whereas maybe if you hadn't done the secondary strategy before, you were managing a portfolio of 15 companies. Every secondary is fund-to-fund manager. Whenever there's a new fund, it's talking about what's the operational solution to think about managing their liquidity. And one area that really matters is cash forecasting. And so our clients are constantly balancing factors from the underlying managers, as we were saying.

14:09We touched on it earlier. The underlying capital calls that are being requested from the funds, expected distributions from those underlying managers. But then you've also got fund-level subscription lines that have their own economics and impacts even on performance at the fund level when you start thinking about leverage, interest expense. And then I think for secondary is really, really important to always think about is just the deferral and the structured nature of a lot of transactions. Again, just trying to think about the evolution of this market. 15 years ago, I would say, again, if I had 10 transactions in front of me from some of our clients, maybe three out of the 10, maybe two out of the 10 would have some type of deferral or structured payment in one year out, two year out, three year out.

14:54Now, I think it's just always a consideration in any of the underwriting that our clients have with their deal teams is to think about what's the desired IRR that I want for my LP base or what's the required return that I have and thinking about all the levers as it relates to that deferral. So with that said, you kind of bring it back to the CFOs that are looking and operating these entities and we, the fund admin that are coming in and handling all the operational needs, the challenge is pulling all that information together and turning it into information that can be actioned, information that can be provided to investment teams, allocation teams that may be set up within our clients' firms just to monitor how they're deploying capital and more importantly, how they're returning capital to their investors.

15:40So when it's done well, it really gives our clients, their finance teams, their deal teams, a really much clearer view of liquidity and making sure they're making informed decisions. Let's move on to some of the different secondary strategies that we see emerging. When you're comparing, I guess, a private equity secondary, which is maybe the most mature of the secondaries' assets classes and where managers will be most familiar, when we compare that to private credit secondaries, where are the operational requirements across those two asset classes similar and where would they be quite different?

16:16David Kahn, Credit assets require, I'll call it an asset servicing layer, where there's a monthly cadence of interest or a quarterly amount, there's rate resets, many more variables that go into the credit space. Whenever you're talking secondaries, I don't care what the asset class is, more times than not, there are direct interests that come along or tagged along or stapled with secondary's transactions. If they're direct holdings of certain private credit instruments, having that infrastructure to be able to handle all that monthly rate reset, any of the loan administration needs to service those assets on a monthly basis on the credit side, super, super important.

16:55And I think you could probably extend that same type of logic in the infra and real asset space, where again, these are income generating assets. So inherently, there's going to be that asset servicing need. Patrick, obviously, so secondaries are there to provide liquidity, they're there to provide flexibility. But as we've kind of discussed and as you've outlined, you don't just flip a switch and access all those benefits. There's complexity involved here. Is there ever a point, a rule of thumb where complexity starts to constrain the manager's ability to grow, where they just don't have the bandwidth to process all these details, all these transactions, et cetera, et cetera?

17:36You know, in your experience, where does that threshold start to become a problem? When do organizations start to creak? Yeah, I think I'm kind of looking at just the larger trends. GPs are really starting to think about consolidating services throughout the space because the asset classes are getting so nuanced. And so what we're seeing is asset managers not playing in one part of the market, but rather really becoming true multi-asset platforms. Historically, they might have only played in a single strategy. And so that may be PE, it may be private credit and for real assets. And so they need to expand their product offering.

18:15This is not necessarily just a function of operational needs. I think it's just also we start thinking more macro picture where you're seeing a lot of managers consolidating so they can kind of address any of the LP appetite across the various strategies. I don't think any manager wants to go in and say, well, I need to buy or invest in in-house all these different type of operational needs. I need to figure out scale. That's why I'm ultimately trying to think about different strategies. I can't have that operational burden of keeping investing. And I'd be remiss not to just even acknowledge highlighting a global footprint becomes more and more important in these instances because they have aspirations to be that global manager.

18:55And you've got a U.S. manager who's saying, okay, I know there's been some challenges with my existing base, endowments and others well-documented, just thinking about allocations. I need to go to EMEA. What's the operational need for a lux feeder? So I think having that provider that can handle pretty much any scenario on the bingo card, really, really important. Okay, I guess the key question then. So is that genuine sort of end-to-end model, that provision from start to finish, is that a realistic objective? Can that actually be delivered in the current markets? And what does that look like in practice?

19:31I think it can. And I think ultimately, the technologies, the people and processes that have matured in this space are dramatic. And I guess I'll just kind of give one anecdotal experience. When I started in this industry, I started in-house with a fund-to-fund manager. I can recall going to a fax machine to get a cap call notice once a week. And so fast forward today, where that same cap call notice that maybe 20 years ago was in a fax machine is now getting pushed electronically via a portal or an API. So I think the technology and the evolution certainly supports the idea that providers can scale and grow and handle these changes.

20:17So I think it's really incumbent upon everyone in the space to start thinking more about scale and being able to be a global provider because every single manager that we're talking about is saying, well, gee, the complexity I had 10 years ago was nothing compared to what I have it now. Just looking at the structure charts of the funds, the sources of capital, vastly different. It isn't just a straight line into a Delaware or Cayman. I'll call it a capital program that most of our clients are putting together. And so you really need to have a scalable model to be able to adapt and change and really be able to fit and check the box for all the various components that a client may be deploying from an operational side or entity side.

21:00The complexities of our private markets are only going to get bigger. Those are the conversations that a lot of our clients are having. I was at a conference earlier this week in Boston, and the GPs themselves were just talking. I was on a panel. Just the competitive nature, right? Managers need to be adapting to what the LP base wants and needs. Pat, let's close with some outlook. I think we assume that the need for secondaries is writ large across the industry. I think it would be years and years and years of transaction volume in secondaries to just clear the current backlog. So this market looks like it is a long trajectory, all things being well.

21:41What do you expect from the operational side? What is the operating model of a successful private markets manager look like in five years if we assume that secondaries carries on this current growth trajectory? Yeah, I think it touches scale, volume, and speed five years from now. I'll go back to that example of how we're delivering information. It's vastly different from the last 15, 20 years. I expect in the next five, it's going to continue to change. I'm not suggesting that PE is going to have daily performance, but I think that type of mentality and discipline around how you need to have your data organized and structured is going to be key.

22:21Being able to have the systems and processes across a global scalable platform, the SLA turnaround time, traditionally might have been a day, but maybe it turns into a half day? And then at some point, is there a way to really automate a lot of this underlying investment activity so that it can be pushed to systems within hours as opposed to a day turnaround? Those are all the things that we're thinking about. I have this phrase, future fund admin, and we talk about that a lot with our leadership group. That is a part of the future fund admin is what is fast today is not going to be fast enough in five years.

22:56So what investments are we making and technology in our global operating model, again, to be able to change speed and move faster. How does automation AI help a manager to deliver that? Yeah, extremely important. We started thinking about the volumes that are coming from all these underlying managers and really the importance of using automation. We're already doing that with some of our digitized products and our other products that we're developing. and take a lot of that manual nature that traditionally has always been used in this space to really automate, scrape the information and push seamlessly into platforms.

23:33That's an area that we've been developing. Thinking about five years from now, where the firm's moving to, that's the foundational elements that need to be there to take what has traditionally been super, super manual and moving totally away from that to automatically processing using agents, protocols that are developed to connect systems that really have no manual intervention that can push seamlessly across systems. Right. One closing question. Pat, if there's a manager listening to this conversation who's either contemplating their first continuation vehicle or considering the launch of new secondary strategy on their platform, what's the single one operational question that they should be asking themselves right now?

24:17If you're a brand new secondaries manager and you're thinking about scaling up to become a billion dollar fund, you might have traditionally only had 50 underlying managers to track. That's very different than tracking 500. And then I think for the CV side, kind of bring it back to where we talked about it, the LP base and those elections and getting ahead of it, extremely important. I brought that example earlier in the call of if you know you have a transaction at year end, what are some of the data needs that you can start addressing now, earlier before year-end happens, so that you already have a cadence of providing that information.

24:56So when the lawyers come in, deal folks come in, you already have that built into your infrastructure to provide certain investor allocations, help with what-if scenarios around carried interest, what are the economics that are going to reset. All that's looking at your GL information, so getting that kind of muscle developed well ahead of transaction in working with your partners, that's been extremely successful with our clients that have launched CVs. Patrick, thanks for your time. I think we've covered a lot of ground and appreciate the insight. Thank you very much.

25:37That again was Patrick Krejci from Altadomus. This episode was edited by Julie Begon and produced by Edward Cleaver and Natalie Novikova. I'm Nicholas Neveling, reporting for PEI Group Titles, Private Fund CFO, and Private Equity International. For more market insights, tune in to Private Equity Spotlight wherever you get your podcasts. Thank you for listening.