Capital Allocators – Inside the Institutional Investment Industry
Episode: Jon Madorsky – Navigating the Evolution of Private Equity Secondaries (EP.448)
Release Date: May 29, 2025
Host: Ted Seides
Guest: John Madorsky, Managing Partner and Co-Portfolio Manager of the Secondary Strategy at RCP Advisors

1. Early Career and Entrepreneurial Spirit

John Madorsky begins by sharing his entrepreneurial roots, growing up in Miami, Florida. From a young age, John demonstrated a knack for business through various ventures, such as selling mangoes and dog walking. This early exposure to entrepreneurship laid the foundation for his future career in finance.

John Madorsky [03:11]: "An entrepreneurial spirit has always been embedded in my system. That same entrepreneurial voyage for me continued."

2. Transition to Finance and Education

John pursued a history major in college, which he later realized provided a strong foundation for investment analysis through hypothesis testing and information validation. After working in strategy consulting at PricewaterhouseCoopers, John ventured into an entrepreneurial startup before joining RCP Advisors.

John Madorsky [04:45]: "As a history major, we take a primary hypothesis and we use primary and secondary information to validate that hypothesis. That sounds a lot like investment."

3. Evolution of the Private Equity Secondary Market

John traces the origins of the private equity secondary market back to the early 1990s, highlighting how it initially operated as a restricted, cottage industry dominated by a few players like Koller and Lex. The market lacked intermediation and was often viewed negatively by general partners (GPs).

John Madorsky [06:55]: "The secondary market was really birthed in 1990... It was still very much a cottage industry and there was not really intermediation."

4. Maturation Post-2010 Financial Crisis

The global financial crisis of 2010 acted as a catalyst for the secondary market's maturation. Limited partners (LPs) began to recognize the secondary market as a viable tool for liquidity, leading to exponential growth in transaction volumes.

John Madorsky [09:32]: "The point of maturation... was the global financial crisis in 2010. Everybody awoke to the fact that private equity positions could be sold."

5. GP-led vs. LP-led Transactions

John discusses the shift from predominantly LP-led transactions to the emergence of GP-led transactions around 2017. This transition marked a significant change in how the secondary market operated, balancing both GP and LP interests.

John Madorsky [11:49]: "By 2020, about half the volume was GP-led transactions and half the volume was LP transactions."

6. The Role of the Secondary Market in Providing Liquidity

The secondary market serves as a critical tool for providing liquidity to the primary market. John emphasizes its dual role in offering liquidity to LPs and allowing GPs to manage their portfolios more effectively.

John Madorsky [15:16]: "The secondary market is the tool to provide that liquidity."

7. Strategic Use Cases for Limited Partners

Modern LPs utilize the secondary market for strategic portfolio construction rather than just for distressed selling. Reasons include over-allocation to private equity, excess exposure to specific managers, or changes in leadership within organizations.

John Madorsky [17:02]: "The construct that the secondary market is only for forced liquidity or distressed sellers is probably an antiquated idea."

8. RCP Advisors' Investment Strategy

John outlines RCP Advisors' nuanced approach to the secondary market, focusing on North American lower middle-market buyouts. Their strategy emphasizes manager quality, asset quality, timing, and pricing to drive value creation.

John Madorsky [20:54]: "We want to be able to identify the value before it hits that inflection point to get our returns."

9. Value Creation and Manager Quality

A critical component of RCP's strategy is assessing manager quality. John explains that understanding the GP's strategy, track record, and relationship history is paramount for successful secondary investments.

John Madorsky [24:57]: "Our roots are a primary investment manager... allows us to assess the construct of team strategy and track record."

10. Impact of AI on Data Collection and Modeling

John explores the increasing role of artificial intelligence in enhancing data collection and financial modeling within the secondary market. While AI is still developing in this space, its potential for streamlining processes is significant.

John Madorsky [28:19]: "AI's got a really powerful place in our market... in three years certainly AI will be able to create a first or second run at our models."

11. Competitive Positioning in the Changing Landscape

As the secondary market continues to grow, John discusses RCP Advisors' competitive positioning, emphasizing their specialization in lower middle-market buyouts and strong relationships with GPs. This focus provides a defensible edge against larger and specialized entrants.

John Madorsky [40:25]: "Our focus of lower middle market has a lot of moats around it."

12. Portfolio Construction and Management

RCP Advisors employs a diversified portfolio approach, blending LP positions, GP-led multi-asset, and single-asset transactions. This strategy ensures a balance between liquidity and long-term returns, catering to various investor preferences.

John Madorsky [43:30]: "We want a blend of all three because when you think about the combination of all of them, they're highly complementary to each other."

13. Exit Strategies

John outlines RCP's exit strategy, aiming to complete investments within a 10 to 12-year horizon. By year nine, they actively evaluate their portfolio to determine which positions to resell, ensuring a structured and predictable exit timeline.

John Madorsky [47:28]: "We want to complete our investment over a specific time horizon, let's call it 10 to 12 years."

14. Future Growth and Industry Improvements

Looking ahead, John is optimistic about the secondary market's growth, driven by increasing LP participation and new capital sources like retail funds (e.g., 40 Act funds). He envisions further specialization and democratization of private equity through varied investment products.

John Madorsky [34:26]: "I can imagine a space where private equity looks a little bit like the public equity manager market does today."

15. Challenges and Sustainability in the Secondary Market

John emphasizes the importance of transparency and fair pricing to sustain growth in the secondary market. Ensuring win-win scenarios for both buyers and sellers is crucial for long-term market health.

John Madorsky [48:41]: "A win win. And that's where we really have to land in order to have that sustainability."

16. Personal Insights and Closing Thoughts

In the final segment, John shares his passion for cars and his commitment to mentorship. He highlights the importance of building meaningful relationships and fostering the next generation of professionals within his firm.

John Madorsky [55:36]: "My hope is it's mentorship... so that they can be better people."

Notable Quotes:

• John Madorsky [06:55]: "The secondary market was really birthed in 1990... It was still very much a cottage industry and there was not really intermediation."

• John Madorsky [09:32]: "The point of maturation... was the global financial crisis in 2010. Everybody awoke to the fact that private equity positions could be sold."

• John Madorsky [15:16]: "The secondary market is the tool to provide that liquidity."

• John Madorsky [28:19]: "AI's got a really powerful place in our market... in three years certainly AI will be able to create a first or second run at our models."

• John Madorsky [48:41]: "A win win. And that's where we really have to land in order to have that sustainability."

This comprehensive discussion with John Madorsky provides valuable insights into the evolution, current state, and future prospects of the private equity secondary market. His expertise underscores the importance of strategic investment, strong relationships, and adaptability in navigating the complexities of institutional investing.