PE Secondaries Explained: Continuation Funds, the DPI Drought, and the GP That Buys From Itself

A $240 Billion Market That Exists to Solve Private Equity's Liquidity Problem

Private equity has a structural flaw it has lived with since inception: the assets are illiquid and the funds are finite. A buyout fund has roughly ten years to buy companies, improve them, and sell them. When the exit window — trade sales, sponsor-to-sponsor deals, IPOs — stays shut, the model jams. Capital that should have been returned to investors sits trapped in portfolio companies, and the LPs who were promised cash get paper marks instead.

The secondary market is the release valve, and it has gone from a niche corner to a record ~$240 billion of transactions in 2025 — a 48% jump on 2024, which had itself just set the prior record at ~$162 billion. Volume has roughly doubled in two years, against ~$315 billion of dry powder waiting to be deployed. Most candidates can name Blackstone and KKR but cannot explain what Ardian, Lexington, Coller Capital, or Blackstone's own Strategic Partners arm actually do — and those are some of the largest pools of capital in the asset class. That gap is the opportunity.

Two Markets Under One Name: LP-Led and GP-Led

"Secondaries" is one label for two different trades, and conflating them is the fastest way to sound like you read about the market rather than worked in it.

LP-led is the older, simpler market: a pension fund decides it is overweight 2017-vintage buyout, so it sells a slice of its holdings to a dedicated secondaries buyer and frees up capital to redeploy. GP-led is where the action — and the controversy — has moved.

Why the Boom Happened: Distributions Fell to 11% of NAV, the Lowest in a Decade

This is not a story about clever financial engineering. It is a story about a frozen exit market forcing the industry's hand.

From 2022, rising rates repriced every asset and the M&A and IPO windows narrowed sharply. Buyout funds could not sell their companies at the marks they were carrying, so they stopped selling. The consequence shows up in one number: distributions as a share of fund NAV sank to roughly 11% in 2024, the lowest rate in over a decade. Five-year DPI — the cash investors had actually been handed back — fell to its weakest level in over a decade, with 2018-vintage funds returning around 0.6x against a historical norm closer to 0.8x at the same age.

LPs that needed cash — to fund new commitments, meet their own obligations, or simply rebalance — could not wait for the GP to find a buyer. So they sold fund stakes into the LP-led market. And GPs that owned good companies they did not want to dump into a weak market built continuation funds to hand existing investors an exit while holding the asset longer. Both halves of the market grew for the same underlying reason: DPI, not IRR, became the metric that mattered, and the conventional exit routes could not produce it.

The Continuation Fund: How a GP Sells a Company to Itself

The continuation vehicle is now ~90% of GP-led volume, so it is worth understanding the mechanics precisely rather than as a slogan.

Used well, this is a genuine alignment tool — a way to keep compounding a quality asset rather than selling a winner early to satisfy a fund deadline. Used badly, it is a mechanism for a GP to recycle its own marks and reset its own economics. The difference lives in the pricing and the governance.

Single-Asset vs Multi-Asset: The Trophy-Asset Trade

Continuation funds come in two shapes, and the mix tells you what the structure is really for. Single-asset continuation vehicles — one company, moved into its own dedicated fund — were roughly 48% of GP-led volume in 2024, the single largest transaction type in the entire secondary market. Multi-asset vehicles, which roll several portfolio companies together, were around 31%.

The single-asset skew is the signal. These are not clean-up vehicles for tired tail-end portfolios; they are GPs concentrating capital into their best company and asking everyone to back the conviction. That is a higher-quality trade than the early continuation funds — which were often a place to park assets nobody else wanted — but it also concentrates the conflict, because the GP is setting the price on its own trophy.

Pricing: LP Stakes at 94% of NAV, Continuation Funds Below Prior Marks

Pricing is where the two markets diverge, and where a serious candidate can show they understand incentives rather than mechanics.

LP-led buyout stakes priced at an average of roughly 94% of NAV in 2024, a sharp recovery from the 10–20% discounts of 2022–23 as buyers gained confidence that the marks were real. A near-par print signals a market that believes reported valuations; a deep discount signals a market that does not.

Continuation-fund pricing runs the other way, and this is the detail the marketing decks skip: transaction prices in continuation vehicles tend to sit below the GP's prior reported NAV. The asset gets sold into the new fund at a discount to the mark the GP was carrying it at — which means the eventual return can land below the valuation assumptions LPs were shown. The GP is, in effect, marking its own homework and then selling it to itself at a number an incoming buyer will accept. That is not fraud; it is structurally awkward, and it is exactly why the governance matters.

The Conflict Baked Into the Structure

Every continuation fund has the same problem at its core, and naming it cleanly is what separates a candidate who understands the market from one who has memorised the acronyms.

The market's answer is a governance stack rather than a prohibition. Best practice — codified in ILPA's guidance — leans on three things: an independent fairness opinion on the price, sign-off from the existing fund's LP advisory committee, and a genuine status quo option so that existing LPs can roll on the same economics rather than being squeezed into selling. A competitive process — running an auction so a third-party bid sets the price the GP must match — is the strongest discipline of all, because it replaces the GP's own mark with a market-clearing one.

The verdict: the structure is legitimate and often genuinely the best outcome for a quality asset, but it concentrates a real conflict, and the protections are process-based rather than absolute. Watch whether the deal was competitively priced and whether existing LPs had a true roll option. A continuation fund with a fairness opinion, an LPAC vote, and a market test is alignment. One without them is a GP refinancing its own portfolio on terms it wrote itself.

Is It a Structural Shift or a Liquidity Patch?

The honest read requires holding both cases before naming a view. The bull case: secondaries are permanent infrastructure now, a real liquidity layer that lets LPs manage portfolios actively and lets GPs hold winners past an arbitrary fund deadline — a feature mature asset classes should have. The bear case: a large share of recent volume is the industry refinancing itself to avoid marking down or selling at a loss, and a market that prices LP stakes near par while continuation funds transact below prior NAV is sending two contradictory signals about whether the marks are real.

The most likely answer is both, in sequence. The DPI drought turned a structural tool into a pressure valve, and a chunk of 2023–25 volume was cyclical stress finding an exit. But the plumbing it built — the buyers, the advisers, the LP comfort with the structure — does not unwind when exits reopen. Secondaries graduate from a crisis workaround to a permanent part of the liquidity stack. The thing to watch is not headline volume but continuation-fund pricing relative to prior marks: as long as assets keep moving into new vehicles below the values LPs were shown, the market is still working off a backlog, not just optimising one.

Careers: A Coverage Skillset Pointed at Funds, Not Companies

A secondaries seat — whether on the buy-side at a dedicated fund or in the advisory groups at Jefferies, Evercore, Lazard, PJT Park Hill, or Campbell Lutyens — is not a standard PE analyst role. You are not underwriting a single company to own it; you are pricing a portfolio of fund interests, or a single asset inside a complex structure, under uncertainty about future capital calls and exits. The modelling is portfolio-level: NAV trajectories, cash-flow pacing, discount-to-NAV, and the J-curve, rather than a clean three-statement build on one business.

The natural feeders are PE itself, sponsor coverage, and fund-focused advisory — anywhere you have learned to read a fund's economics from the investor's side rather than the company's. It is one of the few corners of the buy-side still expanding headcount while traditional buyout hiring has flattened.

Take Your Preparation Further

To speak credibly about where the capital is moving, map the secondaries buyers and advisers the way you would map banks: use our free Firm Research Tracker to track the major platforms and their deal flow. For the full set of PE interview questions and model answers — including fund structure and value-creation topics — see the PE Interview Masterclass.

For the metrics underneath this entire story, see PE Fund Performance Metrics — DPI, TVPI, and the gross-to-net gap. For the other two pillars of the modern PE liquidity stack, see NAV Financing Explained (debt at the fund level to flatter DPI) and Private Credit Explained (debt at the portfolio-company level). For the strategies these funds pursue, see PE Strategies Explained.

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