Episode Summary: The Growth of the Private Equity Secondaries Market and What is Coming with Cari Lodge

Podcast: The Private Equity Podcast, by Raw Selection
Host: Alex Rawlings
Guest: Cari Lodge, Managing Director & Head of Secondaries, CF Private Equity
Date: April 1, 2025

Main Theme

This episode explores the dramatic evolution, opportunities, and future trajectory of the private equity secondaries market. Host Alex Rawlings interviews Cari Lodge, a veteran with over 25 years’ experience in secondaries, about key trends, the market’s rapid growth, drivers of supply and demand, and her personal passion for the sector.

Key Discussion Points & Insights

1. Cari Lodge’s Background & Entry into Secondaries

• Cari’s career began after Columbia Business School, joining DLJ/Credit Suisse and helping shape the early secondaries market, which was then a $2 billion space (00:36).
• Now, she leads secondaries at CF Private Equity and sits on multiple investment and asset allocation committees.

2. Common Mistakes by Private Equity Firms

• Holding Assets Too Long: Many firms hold investments well past optimal exit points, seeking a slightly higher return and missing strong opportunities (01:46).

  “Passing on a good exit opportunity often just delays the exit… the ROI is the same a couple of years later. You don’t know what’s around the corner.” – Cari Lodge (02:31)

• Historical context: Post-2007 GFC, missed exit opportunities led to delayed and sometimes lower returns, underlining the need to seize exits when available.

3. Introduction to Secondaries / Market Growth

• Definition: Secondaries involve buying existing interests in private equity funds, typically providing liquidity for LPs or triggering fund restructurings.
• Astronomical Growth: Market grew from $2 billion to $160 billion in annual volume (00:36, 04:47).

  “The secondary market has moved from a $2 billion market to $160 billion because there is a need for liquidity.” – Cari Lodge (04:47)

• GP-led deals and continuation funds have become key market segments post-GFC, providing more tailored liquidity solutions for managers and LPs.
• Secondaries offer investors reverse J-curve benefits (immediate diversification, shorter duration, strong IRR, and typically lower risk).

4. Evolving Market Appetite & Wider Participation

• More investors now use secondaries for active portfolio management rather than pure liquidity needs (09:04).

  “Now there is more portfolio management…new CIOs come in, rebalance the portfolio, get out of some managers…” – Cari Lodge (09:22)

• Family offices, pension funds, and even endowments with perpetual capital are using secondaries to fine-tune exposures.

5. Market Outlook and Constraints

• Secondary market poised for further explosive growth: anticipated to reach $200–220 billion in the near future (10:51).

  “There’s 10 to 11 trillion dollars of private equity assets out there. And the secondary market at $160 billion is tiny.” – Cari Lodge (11:13)

• Key Constraints: Capital constraints (limited dry powder) and human capital (processing & underwriting capacity) (12:40).

  “It’s an under-resourced industry… only so many law firms to process these transactions… only so many groups to underwrite…” – Cari Lodge (12:55)

• Industry has become more efficient and transparent, with GPs now embracing the role of secondaries rather than viewing them suspiciously.

6. Personal Passion for Secondaries

• Cari describes secondaries as dynamic, intellectually stimulating, and highly collaborative.

  “It’s just so exciting. It changes every day… there’s so much energy and it’s a really, really nice group of people… very collaborative, wonderful industry to be in.” – Cari Lodge (15:03)

• The industry offers unique visibility across the entire private equity universe, making every day different.

7. Industry Trends and Surprises

• Recent surprises: increased interest rates affecting valuations and deal multiples; greater emphasis on alignment and incentive structures at both GP and LP levels (17:29).

  “Alignment is key across the private equity industry… what are they incentivized to do with these companies?” – Cari Lodge (17:46)

8. Supply Drivers in the Secondaries Market

• Diverse reasons for selling: unique portfolio needs, new CIOs, project-driven liquidity needs, rebalancing after market shifts, and fund wind-downs (18:30).

  “Each LP has a unique portfolio and unique needs. A college may need money for a special project…pension plans [suffer] denominator effect…” – Cari Lodge (18:41)

• Secondaries now provide 15–20% of liquidity to the overall private equity market, an increasingly significant share.

9. Secondaries’ Relationship to PE Market Cycles

• Secondaries thrive in both up and down markets, acting as an all-weather solution.

  “We really benefit from all markets…in up markets, we can pay good pricing. In down markets, we’re able to continue to provide liquidity. So it’s really a good place to invest across cycles.” – Cari Lodge (21:31)

• Secondaries no longer only serve distressed sellers; market sophistication and portfolio management are now primary drivers.

10. Learning and Influences

• Cari recommends industry publications (Secondary Investor, Private Equity Analyst), The Economist, and biographies like Steve Schwarzman’s “What It Takes”.

  “Constantly educating yourself, going to lots of conferences… keeping yourself knowledgeable and continuously learning is great.” – Cari Lodge (23:29)

Notable Quotes & Memorable Moments

• On missed exits:

  “If you look at the average length of a holding period…it’s gone from 5.7 years to 6.7 years. Passing on a good exit opportunity often just delays the exit.”
  —Cari Lodge (01:52)

• On secondaries’ transformation:

  “Now there is more portfolio management… new CIOs come in, rebalance the portfolio, get out of some managers that they don’t want to be in for the long term.”
  —Cari Lodge (09:21)

• On industry acceptance:

  “People have heard of secondaries… GPS are now embracing secondaries. This is no longer ‘why would someone want to get out of my fund?’ People aren’t taking it personally anymore.”
  —Cari Lodge (13:33)

• On the all-weather appeal of secondaries:

  “We really benefit from all markets… so it’s really a good place to invest across cycles.”
  —Cari Lodge (21:32)

• Personal passion for the field:

  “It’s just so exciting. It changes every day… we have all this knowledge about what people are doing in private equity… It’s a wonderful industry to be in.”
  —Cari Lodge (15:04)

Timestamps for Important Segments

• 00:36 — Cari Lodge’s background and early days in secondaries
• 01:46 — Biggest mistakes PE firms make: holding assets too long
• 04:47 — What are secondaries? / Why the boom?
• 09:00 — Evolving appetite & how investors actively use secondaries
• 10:51 — Market growth projections & constraints on scaling
• 12:39 — Capital and human capital as key bottlenecks
• 15:03 — Why Cari loves the secondaries market
• 17:26 — Recent trends: higher rates, emphasis on alignment
• 18:30 — Reasons why LPs sell / Supply growth explained
• 21:31 — How secondaries perform through market cycles
• 23:29 — Recommended readings, keeping current

Guest Contact

• Cari Lodge: Reach her on LinkedIn

Summary Prepared For: Listeners and professionals seeking a thorough, accessible overview of the episode’s insights on the secondary market’s growth, drivers, and outlook, as well as personal inspiration from an industry leader.