Secondaries Market Report 2023 — The Only Door

The 2019 secondaries report describes a market that had transformed from distressed to strategic. 2023 tested what that transformation was worth, by making secondaries the only exit route that functioned.

The context is set out in the 2023 US venture and global reports. Listings were largely closed for a second consecutive year. Sales were difficult, because buyers were scarce and price expectations had not converged. Institutions needed liquidity, and the loop connecting distributions to new commitments had broken.

Secondaries were what remained. An institution needing liquidity could sell fund interests. A manager holding a good asset in an ageing fund could move it into a continuation vehicle rather than sell into a bad market. Neither route depended on a listing window or a strategic buyer.

Volume grew, but the more informative feature of the year was the friction: a persistent gap between what sellers would accept and what buyers would pay, which slowed transactions substantially and left much of the desired volume unexecuted.

That gap was not primarily a disagreement about the underlying businesses. It was a disagreement about the reference point — about whether reported net asset values reflected realisable value, given that public markets had fallen while private marks had adjusted less. A buyer pricing off their own view of value and a seller pricing off their reported NAV were working from different numbers before either had formed an opinion about the assets.

The year's most durable outcome was that the market did not recede when conditions improved. Secondaries had become permanent infrastructure.

The bid-ask problem

The friction in 2023 is worth analysing precisely, because it is a general feature of illiquid markets under stress rather than a peculiarity of this one.

The seller's reference point is reported NAV. An institution holding a fund interest carries it at the manager's reported value. Selling below that crystallises a loss against the carrying value — a loss that is real but that has not yet been recognised. Institutional decision-making is structured around reported values, so selling at a large discount requires internal justification that holding does not.

The buyer's reference point is their own underwriting. A secondary buyer values the underlying assets independently. In 2023, that valuation was frequently well below reported NAV, for a reason that was not controversial: public market comparables had fallen substantially, and private marks had adjusted less — the mark-to-event lag the 2022 US venture report describes.

The gap between these reference points was the bid-ask spread, and it was not resolvable by negotiation because it was not a negotiating position. Each side was working from a different number, arrived at by a different process, and both were defensible.

The dynamic this produces is specific and self-limiting:

• Sellers who could wait, waited, hoping marks would converge upward or that conditions would improve.
• Sellers who could not wait transacted, which meant the observed transactions skewed toward the most motivated sellers.
• Reported average pricing therefore understated what a less-motivated seller could have achieved — the same selection effect that distorts venture valuation data in a downturn.
• Volume was well below the level of expressed interest, since most conversations did not reach a transaction.

When the seller's reference is a reported mark and the buyer's is their own underwriting, the spread is not a negotiation. It is a disagreement about which number is real, and it closes only when the marks move.

The resolution came partly through marks converging downward over 2023 and 2024 as private valuations caught up, and partly through structured solutions — deferred payments, earnouts and preferred structures — that let the two sides transact without agreeing on a headline price.

Why GP-led grew faster

GP-led transactions grew faster than LP-led sales in this period, and the reason is that managers faced a problem with no alternative solution.

The manager's position in 2023: holding assets in funds approaching the end of their lives, in a market where selling meant accepting a price well below the carrying value, and where the alternative of holding was constrained by the fund agreement.

The available options:

• Sell into a weak market, realising a poor outcome and crystallising it for LPs.
• Extend the fund, which requires LP consent and provides no liquidity to LPs who want it.
• Move the asset into a continuation vehicle, which provides liquidity to LPs who want it, allows the manager to continue holding, and brings in new capital.

The third option was the only one that addressed every constraint simultaneously, which is why it grew.

The conflict of interest described in the 2019 report became more acute in this environment, for reasons specific to the conditions:

• The price discovery process was weaker, since the competitive bidding that establishes a fair price was constrained by limited buyer capital.
• The LP's alternative was worse, so the pressure to accept the offered price was higher.
• Valuation disagreement was at its widest, which is exactly when an independent reference matters most and was hardest to obtain.

Governance practice held up better than these pressures might suggest — independent valuations, competitive processes and status quo rolling had become standard by 2023 rather than exceptional. The infrastructure built in easier conditions was what made the transactions defensible in harder ones, which is a general argument for building governance before it is needed.

Buyer capital as the constraint

The limiting factor in 2023 was not the supply of assets for sale. It was the capital available to buy them.

Dedicated secondaries funds had raised substantial capital, but the scale of the sell-side need — institutions seeking liquidity, managers seeking continuation solutions, the accumulated backlog of unrealised positions — exceeded it by a wide margin.

Several factors constrained the buy side:

• Secondaries funds are themselves private funds raising from the same LPs facing the same liquidity constraint. The capital shortage upstream affected the buyers too.
• Buyers could be selective, and were. With more opportunities than capital, they concentrated on the highest quality at the best prices, leaving the rest unexecuted.
• Leverage was more expensive. Secondary transactions often use financing, and higher rates raised the cost and reduced the price buyers could pay.
• Deployment pacing was deliberate. Buyers seeing a persistent flow of opportunities had no reason to deploy quickly, since waiting improved their selection.

The consequence is that 2023 was an attractive vintage for secondary buyers — the classic pattern of capital scarcity producing favourable entry terms for those who have it. Buyers who deployed in 2023 acquired assets at prices reflecting a constrained market rather than the assets' value.

For sellers, the mirror image: a market where the buyer is scarce is a market where the seller pays for liquidity. That is the cost of relying on a single functioning exit route, and it is the strongest practical argument for the vintage and exit-route diversification that the archive's other reports keep arriving at.

Permanence

The most durable outcome of 2023 was not a volume figure. It was that secondaries stopped being a response to conditions and became part of the standard toolkit.

The evidence for permanence, visible by 2025:

• Volume did not fall when conditions partially improved. Had secondaries been purely a distress response, activity would have receded as listings reopened. It did not.
• Continuation vehicles became a planned option rather than an end-of-life solution. Managers began considering them as a route for good assets from the outset.
• LP portfolio management incorporated secondaries structurally, with institutions planning periodic sales as part of portfolio construction rather than as an exception.
• Dedicated capital continued to grow, and specialist buyers proliferated across strategies and geographies.

The structural reason for this is worth stating, because it explains why the change should be expected to hold. Private funds have a duration mismatch built into them. A ten-year fund holding assets whose optimal holding periods vary, with LPs whose liquidity needs vary and change over time, has a mismatch that exists in every market condition. Secondaries are the mechanism that resolves it.

Before 2023, that mismatch was tolerated because the primary exit route usually worked well enough. 2023 demonstrated what happens when it does not, and the response was to build permanent infrastructure rather than to wait for conditions to return.

A market discovers what it is really for when it is the only one open. Secondaries turned out to be the mechanism by which private capital manages time — which is a permanent need, not a cyclical one.

How a bid-ask gap actually closes

The 2023 friction is usually described and rarely explained mechanically. Since the gap was a disagreement about the reference point rather than a negotiating position, it is worth setting out how such a gap resolves — because the routes are limited and each has costs.

Route one: the marks move. Private valuations catch up to public comparables as funds report successive quarters and as portfolio companies transact at lower prices. This is the slowest route and it is the one that eventually dominated: by 2024 the reference NAVs had adjusted enough that the gap narrowed on its own.

Route two: the buyer's underwriting moves. If public comparables recover, the buyer's independent valuation rises toward the reported NAV. This happened partially through 2024 and 2025 and is outside either party's control.

Route three: structured solutions. Rather than agreeing a headline price, the parties construct a transaction that does not require agreement:

• Deferred payment. The buyer pays part now and part later, which reduces their upfront risk and lets the seller report a higher headline price.
• Earnouts. Additional payment contingent on realisation above a threshold, which splits the disagreement rather than resolving it.
• Preferred structures. The buyer provides capital with a preferential return rather than buying the interest outright, which is a loan against the position rather than a sale of it.

Route four: the seller's need becomes acute enough that they accept the buyer's price. This is what "sellers who could not wait transacted" means, and it is the route that produces the selection effect distorting reported pricing.

The observable consequence is that transaction volume in a wide-gap market is well below expressed interest, and reported pricing is drawn disproportionately from route four. Average pricing statistics in 2023 therefore describe the most motivated sellers, and should be read as a lower bound rather than a market clearing level.

A bid-ask gap that is a disagreement about the reference point does not close through negotiation. It closes when the reference moves, when the underwriting moves, when the structure sidesteps it, or when one side runs out of time.

What an allocator could act on

Read reported secondary pricing as a lower bound. In a wide-gap market the observed transactions skew toward motivated sellers. A less-constrained seller could frequently have achieved better, and the statistic does not show it.

Treat carrying value and realisable value as separate numbers. The gap between them was the entire content of the 2023 friction. A holder whose decision-making is anchored to reported NAV is anchored to an estimate produced months earlier by a methodology with its own conventions.

Plan secondary sales rather than treating them as exceptions. The stigma is gone. An institution can rebalance private exposure, exit a manager relationship, or reshape a vintage distribution as a portfolio management action — but only if it has built the capability before it needs it. Selling under pressure into a buyer-scarce market is the expensive version.

Assess GP-led transactions hardest when conditions are worst. The conflict is structural and it becomes most acute when price discovery is weakest and the LP's alternative is poorest — which is exactly when the transactions are most needed. The protections that matter are independent valuation, a genuinely competitive process, and status quo rolling.

Recognise buyer capital as the binding constraint. In 2023 the limit was not assets for sale but capital to buy them, which made it an attractive buy-side vintage and an expensive sell-side one. A market where the buyer is scarce is a market where the seller pays for liquidity — the cost of relying on a single functioning exit route.

Expect the market's permanence. Private funds have a duration mismatch built into them: fixed fund lives, variable optimal holding periods, and LP liquidity needs that change. That mismatch exists in every market condition, which is why secondaries did not recede when conditions improved.

What 2023 established for secondaries

• Secondaries became the primary functioning exit route, and demonstrated their value by being the only one available.
• The bid-ask spread was shown to be a disagreement about the reference NAV, resolvable only by marks converging or by structured solutions.
• GP-led growth was driven by constraint, not preference, and governance built in easier times is what made it defensible.
• Buyer capital was the binding constraint, making 2023 an attractive buy-side vintage and an expensive sell-side one.
• Permanence was established, confirming the market addresses a structural duration mismatch rather than a cyclical liquidity problem.