Introducing Secondaries Edge: I’m Paul Elias and this is your weekly insider’s guide to the secondary markets. Every Wednesday I’ll take you behind the scenes of this fast-growing asset class as it expands beyond private equity into credit, infrastructure and real estate.
Once dismissed as a corner for distressed exits, secondaries are now central diversification tools, liquidity generators and an academic lesson on how and why strategies evolve.
Here’s what’s on the cutting edge this week.
TOP STORIES
Fundraising Milestones
Ardian rang in the New Year with a bang, closing its ninth secondaries fund at $30 billion, easily the largest secondaries fund ever raised.
The milestones have been piling up since. The latest victory laps:
StepStone (NYSE: STEP) announced at the end of April the largest-ever real estate secondaries fund. The New York-based firm closed StepStone Real Estate Partners V on $3.77 billion.
Then Apollo (NYSE: APO) and Ares (NYSE: ARES) each took curtain calls on May 1 for significant secondaries fundraise milestones of their own.
Apollo announced it had closed its first secondaries fund with $5.4 billion in commitments. The private credit giant closed S3 Equity & Hybrid Solutions Fund I after raising a total of $10 billion across its secondaries strategy in just three years.
Ares, meanwhile, touted its acumen in raising $3 billion over the same period for a fund targeting private wealth investors.
- TAKEAWAY: Few are betting against a bull run this year. The rise of new capital sources, including specialist investors and the growing AUM of evergreen funds, is expected to accelerate both GP-led and LP-led transaction activity. Ardian’s $30 billion ante didn’t hurt, either.
Evergreen’s Take Root
Despite record demand, or because of it, secondary funds are as desperate for fresh capital as any self-respecting fund manager. And like every other private asset class, the wealth channel is the new belle of the ball. Unlike most, however, secondaries seem to be filling up their dance card.
Jefferies says evergreen retail structures such as ’40-Act funds are already a “cornerstone” of the sector, accounting for one-third of 2024 fundraising.
Adding to the scoreboard:
Morgan Stanley Investment Management recently launched a debut evergreen fund to offer lower middle-market buyout secondaries to private wealth clients. The ’40-Act North Haven Private Assets Fund also offers co-investments.
Neha Champaneria Markle, head of Morgan Stanley (NYSE: MS) private equity solutions, says the lower middle-market is often overlooked and offers “lower entry valuations, greater potential for organic and M&A-driven growth and more liquidity options compared to the large cap segment.”
Morgan Stanley’s announcements followed Pantheon‘s unveiling of its debut evergreen private credit fund aimed at retail investors. Pantheon roll-out came hot on the heels of its $5.2 billion Pantheon Senior Debt III credit secondaries raise that also includes evergreen elements.
- FAST FACT: The Investment Company Act of 1940 requires funds to register with the SEC and adhere to limits on fees, leverage and capital‑raising practices. Hence ‘40 Act funds.
College Diversification
“The endowment thing is real,” says Ares CEO Michael Arougheti.
Arougheti was responding to an analyst question Monday about Yale and Harvard’s recent secondaries activities. The analyst wondered whether they were one-off events or first movers in an emerging market.
“I think that it’s pretty broad-based within the university endowment community now to be thinking about liquidity options within the portfolio,” he answered.
Yale and Harvard each insist that going to the secondaries market was about portfolio diversification, not a response to the Trump administration budget cuts.
Maybe.
But Arougheti sees the budget cuts as catalyzing other colleges to seek liquidity in the secondaries markets.
“I think that most university endowments right now are grappling with a significant reduction in research funding from the government as well as a certain level of anxiety around potential increases in the endowment tax,” Arougheti said. “And so moving to a position where you have increased liquidity or understand what solutions are available to you is exactly what they’re supposed to be doing.”
- THESIS: Transactions volume this year was already expected to exceed 2024’s record volume of $162 billion (using widely accepted Jefferies numbers) before factoring in the recent boom of new 40 Act funds and the possibility of college endowments entering en masse.
FUNDRAISING
- Apollo raised $8.5 billion for its Accord + hybrid credit strategies, which include secondaries investments. The strategy includes the $4.8 billion Accord+ Fund II as separately managed accounts and related structures.
- Lexington Capital received $600 million in commitments from the State of New Jersey Division of Investment. New Jersey committed $150 million each to Lexington Middle Market Investors V and Lexington Continuation Vehicle Investors, plus $300 million for co-investment opportunities.
- Franklin Templeton has launched a semi-liquid secondaries fund for wealthy investors outside the U.S. that will be operated by Lexington Partners. The fund has raised $875 million from clients. Franklin acquired secondaries specialist Lexington in 2021 for $1.75 billion.
- Hamilton Lane launched its Venture Capital and Growth Fund, a ’40 Act, evergreen vehicle for wealthy investors to invest in VC and PE secondaries.
DEALS
- TA Associates took a minority stake in Kline Hill Partners, a small-stakes secondaries shop.
- J.F. Lehman & Co. moved all assets remaining in its debut credit fund, which also included debt indirectly held by JFL Investors Equity VI, into a continuation vehicle. Pantheon served as the lead investor with StepStone also participating.
- HGGC and Snapdragon Capital Partners moved Canadian healthcare platform Fullscript into a CV. Leonard Green served as the lead investor.
PEOPLE
- Partners Capital appointed Andy Canovali to the New York firm’s newly created position of managing director in charge of secondaries. The Goldman Sachs (NYSE: GS) PE alum spent the last year as head of secondaries at Sagard-owned Performance Equity Management.
- Moelis (NYSE: MC) poached two Manulife Investment Management vets to beef up its expanding secondaries unit, specifically focused on GP solutions. Jeff Hammer and Paul Sanabria, who also worked together at Houlihan Lokey (NYSE: HLI), join as managing directors.
- Newly launched SQ Capital added two experienced PE vets to its management ranks. SQ appointed Henry Minello as managing director on its investment team after 18 years at Permira and Andrew Curry as managing director on its investor relations team. Curry spent 13 years at The Carlyle Group (NYSE :CG). Mustafa Siddiqui, who managed Blackstone’s (NYSE: BX) GP stakes strategy, launched SQ in January.
That’s the market in motion. Stay sharp and see you next Wednesday. Until then, send tips, quips and tidbits to secondaries@themiddlemarket.
