Why LPs and Sovereign Funds Are Reshaping the Secondaries Market

The secondaries market has transformed into a cornerstone of private equity. While dedicated secondaries funds and global asset managers dominate the headlines, the real force reshaping the market comes from the limited partners (LPs) themselves, especially pensions, endowments, and sovereign wealth funds.

Overallocated to private markets and starved of distributions from traditional exits, these investors are now the biggest sellers in secondaries. Their actions are creating mega-deals, fueling record fundraising, and setting the tone for where the market goes next.

LPs Step Into the Spotlight

When the secondaries market first emerged, it was just opportunistic deals that defined the space. Today, it is the sellers, large institutional LPs, who drive activity. Ardian, the market leader, focuses on acquiring large LP portfolios. Its average deal size has grown from $100 million two decades ago to $2 billion today, with some transactions reaching $5–10 billion.

Sovereign wealth funds are also increasingly active. These capital-rich institutions often sell large portfolios to rebalance allocations and free up liquidity. Similarly, pension funds overallocated to private markets have become frequent sellers as denominator effects lock up their capital.

The shift is striking. Secondaries are no longer dominated by opportunistic deals, but by institutional sellers who shape the pace and scale of the market.

Overallocation: The Denominator Effect

The biggest driver of LP activity is the denominator effect. With public market valuations stagnating while private valuations hold firm, many institutions find their private equity exposure exceeding target allocations. This imbalance forces them to sell fund stakes in the secondary market to regain balance.

For some, this shift has redefined secondaries. No longer a tactical measure of last resort, secondaries are becoming a structural tool for portfolio management, one that is integrated into annual allocation reviews rather than triggered by crisis.

Sovereign Funds as Market-Makers

Sovereign wealth funds in particular are reshaping the market. Their scale makes them powerful sellers, able to bring multi-billion-dollar portfolios to market, creating the type of mega-deals that only the largest secondaries buyers can absorb. They also act as strategic sellers, repositioning portfolios geographically and sectorally, and not necessarily just for liquidity.

Many sovereigns play a dual role, both selling and buying, using secondaries to fine-tune exposures across asset classes. Their sizable activity contributes to the rhythm of dealflow. When sovereigns are active, volumes can surge into record territory; when they step back, activity moderates, leaving buyers with excess dry powder.

The Rise of LP Participation

LPs participate consistently in the secondaries market, depending on liquidity needs, reallocation pressures, or market opportunities. This increased activity is reshaping the rhythm of the market. Periods of surge occur when several large portfolios come to market simultaneously, driving volumes higher.

How LPs are Crucial for GP-Led Continuation Funds

While LP portfolio sales dominate headlines, LPs also shape GP-led secondaries. Continuation funds require LP approval and often provide opt-out liquidity for those who prefer to exit. LPs that roll over into continuation vehicles provide stability for GPs, while those that opt out create dealflow for secondaries buyers.

In this way, LPs act as gatekeepers, deciding not only whether continuation funds succeed but also how much secondary capital flows into these structures.

Challenges for LP Sellers

Despite their influence, LPs face challenges when engaging in secondaries. Pricing pressure is a constant concern. Discounts to NAV can be steep in volatile markets, forcing difficult trade-offs between immediate liquidity and long-term value. Capacity constraints add another layer: not every portfolio attracts bids if buyers are limited by capital availability. Finally, execution complexity cannot be ignored. Selling large portfolios requires specialized intermediaries, legal expertise, and significant resources, adding friction to the process.

For LPs, secondaries are powerful but not painless. Execution risks and pricing pressures mean outcomes vary depending on timing, scale, and market conditions.

Impact on Buyers

The flood of LP-led opportunities has reshaped the buyer universe. Mega-managers such as Ardian, Blackstone, and HarbourVest thrive as only they can consistently execute $5–10 billion transactions. Mid-market players, by contrast, risk being crowded out of large portfolio trades. Yet this shift has also opened space for niche opportunities. Specialist firms are focusing on GP-led single-asset deals, particularly in technology sectors such as software.

This has created a “barbell market”: mega-deals on one end and specialized, single-asset transactions on the other.

The Future: Institutionalization of Secondaries

As LPs and sovereign funds normalize their use of secondaries, the strategy is shifting from opportunistic to institutional. What was once a tool of last resort is becoming part of the standard liquidity playbook.

Trends pointing forward include portfolio management as routine, with large LPs incorporating secondaries into annual or biennial allocation reviews. Sovereign wealth funds, with trillion-dollar balance sheets, are likely to remain pivotal structural sellers. And as semi-liquid funds expand, LP activity may indirectly drive retail access to secondaries, broadening the base of capital available.

The trajectory is clear: secondaries are being embedded into the very fabric of institutional portfolio management.

LPs at the Center of the Market

The secondaries market can no longer be understood without accounting for the central role of LPs and sovereign wealth funds. Their massive participation shapes dealflow, determines pricing, and drives the rise of mega-funds.

For buyers, this means aligning with institutions that can guarantee deal access. For GPs, it means treating continuation funds as permanent tools rather than ad hoc fixes. And for LPs themselves, it means embracing secondaries as a crucial portfolio management tool.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: Why are LPs so active in the secondaries market now?

A: Overallocated to private equity and constrained by slow distributions, LPs are using secondaries as a structural tool to rebalance portfolios and unlock liquidity.

Q: How do sovereign wealth funds influence the secondaries market?

A: Sovereigns bring multi-billion-dollar portfolios to market, act as strategic sellers, and often play a dual role as both buyers and sellers, making them key market-makers.

Q: How do LPs influence GP-led continuation funds?

A: As gatekeepers, LPs decide whether to roll over or exit when GPs launch continuation funds. Their choices determine whether these transactions succeed and how much secondary capital is deployed.

Q: What challenges do LPs face when selling in the secondary market?

A: Pricing discounts, limited buyer capacity, and execution complexity make selling large portfolios demanding, even for institutional investors.

Q: What does the future look like for LP participation in secondaries?

A: Secondaries are shifting from opportunistic to institutional. LPs will continue to shape dealflow, with sovereign wealth funds acting as structural sellers and retail channels broadening access.

Sources

1. The Secondaries Investor 50: 2025.
   https://www.secondariesinvestor.com/top-secondaries-firms/
2. Jefferies H1 2025 Global Secondary Market Review
   https://www.jefferies.com/wp-content/uploads/sites/4/2025/08/Jefferies-Global-Secondary-Market-Review-July-2025.pdf?utm_term=6601147548