A closer look at the private equity secondary market’s growth and role in delivering liquidity.
DPI is the new IRR…
If you haven’t said it yourself, you’ve probably heard it. Repeatedly. After a liquidity-rich decade during which generally 20% or more of private equity Net Asset Value (NAV) was distributed annually, the past three years’ distribution yields have fallen meaningfully below the long-term average (Figure 1). With limited signs of a recovery in 2025, LPs and GPs alike continue to echo this all-too-familiar refrain.
In response, the secondary market has stepped in as a pillar of portfolio management. LP-led transactions help investors create much-desired Distributions to Paid-In Capital (DPI) as “traditional” exit activity remains soft; and GP-led transactions, once reserved for distressed situations, allow sponsors to distribute capital while retaining their trophy assets.
The result: a market that is growing in volume, sophistication and strategic importance. 2024 set a new record for secondary transaction volumes, reaching an estimated $160 billion. With $102 billion already transacted in the first half of 2025, the market is on pace to break that record once again. Despite the rapid recent growth, we believe there is plenty of room for further expansion in the years to come.
Net Asset Value continues to grow
Having grown nearly every year over the past two decades, total private equity fund NAV reached $8.7 trillion in 2024 (Figure 2). This “mountain” of NAV has created tremendous secondary buying opportunities. At the same time, total secondary penetration (defined as LP secondary volume as a percentage of total starting NAV) has remained at a modest 1% since 2013, implying a relatively undercapitalized market.
Although NAV growth has been more modest since the Federal Reserve’s 2021 rate hikes, there remains $2.5 trillion of dry powder across private equity funds to support continued growth for the foreseeable future. For context, even if yearly NAV growth were to moderate to just 5% going forward (from the 15% experienced over the past decade), and secondary market penetration increased modestly to 1.5% with continued market adoption, the implied secondary market volume in 2030 would more than double in size to reach approximately $350 billion, assuming an even split between GP- and LP-led volumes.
Distributions have grown; yields have not
While private equity has experienced materially lower distribution yields in absolute terms over the past three years, distributions themselves are not drastically lower than pre-2020. They continue to grow in step with the historical half-decade trend (Figure 3). Put another way, this current period of lower distribution yield is driven by the increase in NAV rather than by an absolute reduction in distributions.
While we witnessed a similar drop in yields during both the dot-com bubble and the GFC, the length of the current drought is unprecedented. Yields have been depressed for three years, and 2025 looks set to be no different. We believe the current drought is structurally different from previous periods of muted distributions, and while a recovery in the IPO markets will close some of the gap, we expect secondaries will play an increasingly important role in bringing yields closer to the long-term average.
Longer holds will boost secondary volumes
One natural consequence of the divergence between rising NAV and stagnant yields is longer holding periods.
The median age of unrealized private equity investments has risen steadily since the Fed raised rates in 2021; today, approximately half of portfolio companies have been held for more than five years (Figure 4). This trend bodes well for growth in the secondary market as both LPs and GPs prioritize DPI.
LPs create their own DPI
Rather than sit back and wait for distributions to materialize, LPs have become increasingly active in generating their own liquidity. 2024 proved to be a banner year for LP secondaries, with volume reaching $89 billion. Momentum has continued into 2025, with a record-breaking $54 billion transacted in 1H25 (Figure 5). This growth is not just about new entrants—though the number of first-time sellers continues to climb—but also about institutions returning to market with increasing frequency. Once LPs experience the benefits of secondary sales, they tend to become repeat participants, leveraging the market as an active portfolio management and liquidity generation tool.
GP-led transactions create additional exit optionality
While traditional exit channels—such as IPOs and sales to corporates or sponsors—have lagged behind NAV growth, GP-led solutions have helped fill the gap. “GP-leds” provide sponsors with additional portfolio management tools that enable them to retain exposure to their best assets while also offering much-needed liquidity to investors.
GP-led secondary transactions have demonstrated remarkable resilience and growth, reaching an estimated $71 billion in 2024—a nearly 40% year-over-year increase and representing 44% of total secondary market activity (Figure 6). 1H25 has already set a new record with $48 billion in volume. This growth reflects a structural shift: Once a niche solution for restructuring so-called “zombie funds,” GP-leds have evolved into a mainstream portfolio management tool.
In 2024, GP-led secondaries represented 10% of total sponsor-backed exits, which we expect will continue to increase in the coming years as adoption continues. As a result, even if the IPO window reopens and M&A volumes catch up with NAV growth, GP-led secondary transactions will continue to drive secondary market volumes in the years ahead.
The best is yet to come
Despite ongoing macroeconomic uncertainty, long-term structural tailwinds will continue to support growth in the secondary market. Private equity NAV remains at historic highs, secondary market penetration is still relatively low and growing liquidity needs are fueling both LP-led and GP-led transactions. These dynamics point to sustained expansion in the years ahead. Rather than signaling a market peak, the record-breaking volumes of 2024 underscore the sector’s increasing maturity and its critical role within the broader private equity ecosystem.
