Understanding Seller Motivations
The private equity secondary market has grown dramatically over the past decade, with transaction volumes reaching record highs. But what drives limited partners (LPs) to sell their fund commitments?
Why Sell?
Cash Flow Needs
The most common reason for selling is simple: liquidity. Private equity commitments tie up capital for 8–12 years, which can create cash flow mismatches. LPs may need to generate cash quickly to rebalance portfolios, meet capital calls elsewhere, or fund organizational needs. A university endowment facing budget pressures or a pension fund with higher benefit payouts might sell fund stakes to raise cash.
The Denominator Effect
When public markets fall, private equity allocations can suddenly represent a much larger share of a portfolio than intended. Because PE valuations are reported with a lag, they don’t fall in tandem with public markets. An investor targeting 10% PE exposure could suddenly find themselves at 15% after a market correction. Selling PE positions can bring allocations back in line.
Organisational and Personal Changes
External changes often trigger sales regardless of fund performance. A new CIO may prefer to reshape the portfolio and exit legacy positions. Similarly, mergers, board changes, or new regulations can prompt reviews and sales. For individuals and family offices, personal circumstances like succession planning or divorce may also create liquidity needs that don’t align with fund timelines.
Portfolio Rebalancing and Diversification
LPs frequently sell to refine portfolio construction. An investor overexposed to certain vintages (e.g. 2006–2008) may rotate into newer funds. Others may reduce geographic or sector concentration, or trim positions with specific managers. Selling can free up capacity to invest in top-tier managers while staying within target allocations.
Administrative Burden and Resource Optimisation
Managing a PE portfolio is resource-intensive. Monitoring many non-core or underperforming positions may not justify the time and cost for staff. Selling reduces this burden and allows focus on core manager relationships.
Access to Top Managers and Co-Investments
Some LPs even sell high-quality fund interests for strategic reasons. For example, selling a stake in one fund might improve access to a manager’s next, oversubscribed vehicle. Similarly, co-investment opportunities usually end once a fund’s investment period is over. For investors who committed largely to secure those co-investments, the rationale for holding the fund weakens.
This is especially true for certain types of investors:
Corporates in venture capital may value co-investments as much as the fund stake itself, because they bring commercial partnerships and potential acquisition opportunities. Once a fund stops doing new deals, that strategic benefit disappears, making a sale logical.
Pensions and sovereign wealth funds often prioritise co-investments because they allow them to build more concentrated exposure to a GP’s best ideas, but with lower fees and carry. Once the investment period ends, those opportunities dry up, so selling becomes a sensible option.
Even strong funds can be sold if the original purpose for the investment (like co-invest access) is no longer being served.
Regulatory and Compliance Requirements
Banks, insurers, and other regulated investors may face changing capital requirements that make holding PE less attractive. Secondary sales allow them to stay compliant without disruptive forced sales. This was especially true during the global financial crisis, when many investors were forced to sell. But that episode also removed much of the taboo around selling, which has helped fuel the growth of the secondary market over the past 15 years.
The Ecosystem Benefits
On the other side of every transaction are buyers, motivated by the opportunity to purchase portfolios at discounts, gain instant diversification, and access shorter-duration cash flows compared to a new fund commitment. These factors make secondaries attractive investments in their own right, evidenced by its growing AUM and the large funds that have been raised in the space.
The secondary market also makes private equity itself more investable by providing a liquidity outlet for LPs, which encourages broader participation in the asset class. Despite these benefits, secondary transactions still account for only about 2% of total private equity market NAV (Barcelona School of Economics), meaning most LPs still hold positions to maturity. This highlights both how useful secondaries can be, and how much room there is for growth as more investors become aware of the option.
Closing Thoughts
The secondary market is no longer a niche corner of private equity. Once used mainly in periods of distress, it is now increasingly applied as a practical portfolio management tool. Over time, LPs have found new and creative ways to use it to achieve their goals. And as the market has grown, it has matured into a sophisticated, diverse platform that can accommodate these agendas and handle all types of assets, regardless of the seller’s rationale.
At Joran Partners, we work with clients to navigate the secondary process, from preparing and positioning a sale to closing smoothly with the right buyer.
Disclaimer: The information in this article is provided for informational purposes only and does not constitute legal, tax, or financial advice. It should not be relied upon as a basis for any investment or transaction. Readers should consult their own professional advisers for advice specific to their circumstances. Joran Partners assumes no responsibility for any actions taken based on this content.