Private Equity Spotlight

Episode: SI Decade: The Birth of Programmatic Secondaries Sales
Date: May 22, 2024
Host: Madeline Farman, PEI Group
Guests: Geoff Key (Chair, HarbourVest Secondaries Investment Committee), Adrian Milan (PJT Park Hill)

Episode Overview

This episode examines the evolution of LP-led (limited partner-led) secondaries sales in the private equity market. Host Madeline Farman and guests Geoff Key and Adrian Milan explore how the market shifted from reactive, stigmatized sales post-financial crisis, to a mature, strategic, and programmatic process used by leading institutional investors today. The discussion covers market growth, changing seller profiles, greater sophistication, and predictions on how technology, capital availability, and new investor types will shape the next decade.

Key Discussion Points & Insights

1. Historical Context: Origins and Inflection Points

• Early Growth
  • Post-2008, LPs were often "forced sellers," reacting to the denominator effect and liquidity pressures. Secondaries market volume surged, hitting $26B in 2013 and $40–$50B by 2014 ([00:01]).
• Shift in Seller Profile
  • Initially, financial institutions under regulatory pressure dominated sales; now, a wider range of institutions—such as pensions, sovereign wealth funds, and fund of funds—are both primary investors and leading sellers ([03:19]).

Notable Quote:

"The market was disproportionately characterized by sellers who were financial institutions... that's very different than the market today where you have more of a balance."
— Geoff Key [03:19]

2. LP-led Market Maturation & Destigmatization

• From Reactive to Strategic
  • Secondaries sales are no longer ‘desperate’ or only under duress. They’re proactive, regular portfolio management tools.
• Transparency and Efficiency
  • The market now offers more buyer choice and efficient advisory support, further destigmatizing selling ([04:58]).

Notable Quote:

"Selling 10 years ago was probably more precipitated as a result of regulatory pressure... today... institutional investors... proactively manage their portfolio... it’s no longer an unknown."
— Geoff Key [04:58]

3. Increased Sophistication of Sellers

• Programmatic Selling
  • Major institutions now approach secondaries as a recurring activity, employing advanced strategies such as preferred equity, NAV financings, and structured solutions ([06:19]).
• Benefits of Sophistication
  • Increased confidence to transact larger portfolios and willingness to explore customized solutions, not just straight cash-for-title sales.

Memorable Moment:

"Sophisticated sellers... can extract more than just price maximization, but introduce other bells and whistles that may help them accomplish a variety of transaction objectives."
— Geoff Key [07:26]

4. The Rise of Repeat and First-Time Sellers

• Quantitative Shift

  • Research: Of ~$500B in LP transaction volume over the last decade, about 50% came from just 50 repeat sellers ([09:22]).
  • Recent years have seen "an enormous expansion of the number of first-time sellers."

• Future Tailwind

  • First-time sellers today are expected to become repeat sellers, further accelerating market growth in the coming decade.

Notable Quote:

"That is a tailwind certainly to the rapid expansion of the market as we look forward."
— Adrian Milan [09:22]

5. Changing Private Equity Allocations & Future Supply

• Allocation Growth Drives Activity
  • As institutional allocations to private markets rise (from a minor to a substantial portion of portfolios), the likelihood and necessity to sell increases ([11:21]).
  • New entrants are expected to become sellers in about 4–5 years as their portfolios mature.

6. Asset Class Expansion & Liquidity Pressures

• Beyond Buyouts

  • Increasing activity in credit, real estate, infrastructure, and fund of funds markets.

• Liquidity Pressures

  • Recent slowdowns in distributions and large capital calls drive more LPs to consider sales ([13:35]).

• First-Time Seller Statistics:

  • Anecdotally, about 50% of sellers over the last 12–18 months are new, highlighting market expansion ([13:35]).

7. Evolving Seller Objectives and Market Advice

• Nuanced Decision Making
  • Today’s LPs seek to understand all options, not just best price, including timing, structure, portfolio mix, and potential future upside ([15:29]).
• Strategic Advice
  • Programmatic reviews, right-sizing portfolios, and exploring alternatives (preferred equity, dividend recaps) are now core to the advisory role.

8. Buyer Best Practices

• Relationship Building
  • Positive transaction experiences with sellers enhance future deal opportunities ([18:14]).
• Data and Familiarity as Competitive Advantages
  • Buyers who know a seller’s portfolio can move faster and provide custom liquidity options.

Notable Quote:

"If a seller has a bad experience with a buyer, you can be sure that that seller will not look to transact with that buyer again."
— Geoff Key [18:14]

9. Predictions for the Next Decade

• Dual Roles for LPs
  • LPs will more frequently shift between selling and buying on the secondaries market, especially as they manage complex, evolving portfolios ([20:02]).
• Increased Transaction Frequency
  • Quarterly or even monthly opportunities driven by GP-led activities will normalize frequent liquidity discussions.

Notable Quote:

"Private markets will absolutely expand... the secondary market... will continue to grow and 10 years from now will be an order of magnitude larger."
— Geoff Key [21:59]

10. Technology and Capital Availability

• Efficiency Gains
  • Technology—automation, AI, faster data sharing—will cut transaction times, especially contract and due diligence processes ([23:42], [25:10]).
• Need for More Capital
  • As repeat and new sellers proliferate, market growth depends on larger pools of buyer capital and greater diversity of investor platforms ([26:22]).

Notable Quotes & Timestamps

• "The market was disproportionately characterized by sellers who were financial institutions... that's very different than the market today."
  — Geoff Key [03:19]

• "Selling 10 years ago was probably more precipitated as a result of regulatory pressure... today... institutional investors... proactively manage their portfolio."
  — Geoff Key [04:58]

• "Sophisticated sellers... can extract more than just price maximization, but introduce other bells and whistles..."
  — Geoff Key [07:26]

• "That is a tailwind certainly to the rapid expansion of the market as we look forward."
  — Adrian Milan [09:22]

• "If a seller has a bad experience with a buyer, you can be sure that that seller will not look to transact with that buyer again."
  — Geoff Key [18:14]

• "Private markets will absolutely expand... the secondary market... will continue to grow and 10 years from now will be an order of magnitude larger."
  — Geoff Key [21:59]

Segment Timestamps

• [00:01] – Setting the scene: evolution of secondaries market since GFC, volume stats, regulatory pressures
• [01:59] – Milan on early market inflection points and initial billion-dollar sales
• [03:19] – Key on changing seller profiles and institutional makeup
• [04:58] – Destigmatization and mainstream adoption of secondaries
• [06:19] – Rise of sophisticated, programmatic sellers
• [09:22] – Repeat vs. first-time sellers and market concentration
• [11:21] – Expanding private equity allocations, future supply
• [13:35] – New asset classes, increased first-time activity
• [15:29] – Seller objectives, strategic advice
• [18:14] – Best practices for buyers, importance of repeat relationships
• [20:02] – Predictions: LPs as buyers, greater frequency
• [21:59] – Market growth, demographic changes, tech’s impact
• [26:22] – Capital availability and market expansion requirements
• [28:03] – Teaser on next episode’s focus: specialization in secondaries

Conclusion

This episode captures the transformation of the secondaries market from a distressed, stigmatized niche to a mature, strategic tool for institutional investors. With rising sophistication, technology-driven efficiency, and more capital in play, the market is set for exponential growth—contingent on innovation, capital inflow, and expanding participation from both institutions and high-net-worth individuals. Programmatic selling is the new normal, and both sellers and buyers must adapt to the demands of an increasingly complex and dynamic landscape.