Key Takeaways
- • The secondaries market has evolved into a £200bn institutional asset class offering mature private market exposure with enhanced transparency, shorter duration, and improved liquidity compared to traditional primary funds.
- • Limited partner liquidity demand has driven explosive growth in secondaries over the past decade, with the market now encompassing GP-led restructurings, continuation vehicles, infrastructure secondaries, private credit portfolios, and real asset transactions beyond traditional private equity.
- • The Local Government Pension Scheme (LGPS) faces persistent public market volatility, funding ratio pressures, and governance scrutiny, positioning secondaries as a potential portfolio management tool that could enhance risk-adjusted returns and diversification.
- • LGPS pools, as they accumulate assets and institutional capacity, are increasingly positioned to become regular buyers of secondary opportunities, creating structural demand from a significant institutional investor base.
- • Secondaries address a critical pain point for pension investors: the shortage of liquidity from private market allocations, making the asset class relevant to long-term institutional investors seeking both capital efficiency and return enhancement.
Summary
The Local Government Pension Scheme confronts a challenging investment environment marked by volatile public markets, pressure to improve funding ratios, and heightened scrutiny over governance and liquidity management. Within this context, secondary private markets have emerged as a material opportunity for LGPS investors to recalibrate portfolio construction.
Secondary transactions occur when investors sell existing interests in private markets funds or portfolios before underlying assets are fully realized. Historically dominated by limited partners seeking liquidity exits from private equity, the market has undergone substantial evolution. The secondaries ecosystem now encompasses general partner-led restructurings, continuation vehicles, infrastructure secondaries, private credit portfolios, and real asset transactions—a diversification that has grown the market to approximately £200bn in size.
Charlie Bridgeland, a partner on the secondaries team at Lexington Partners (a Franklin Templeton subsidiary), observed that the primary driver of this decade-long expansion has been persistent liquidity constraints. "What has happened over the last ten years, the number of sellers – limited partner selling – has grown enormously, because they are not getting enough liquidity," Bridgeland noted. This structural demand reflects the mismatch between institutional investors' need for capital efficiency and the illiquidity inherent in long-duration primary fund commitments.
For pension schemes like the LGPS, secondaries present dual benefits: they deliver exposure to mature private market assets with greater transparency and shorter fund life than traditional primary commitments, while simultaneously providing a liquidity management mechanism. As LGPS pools continue to accumulate assets and institutional resources, they are positioned to become regular, systematic buyers of secondary opportunities, aligning their capital with investment structures that address fundamental portfolio management challenges.
The evolution of secondaries from a niche corner of private equity into a sophisticated institutional asset class reflects genuine structural shifts in how long-term investors manage illiquid allocations—a shift particularly relevant to pension schemes balancing return objectives with fiduciary obligations around capital preservation and accessibility.
Secondary transactions occur when investors sell existing interests in private markets funds or portfolios before underlying assets are fully realized. Historically dominated by limited partners seeking liquidity exits from private equity, the market has undergone substantial evolution. The secondaries ecosystem now encompasses general partner-led restructurings, continuation vehicles, infrastructure secondaries, private credit portfolios, and real asset transactions—a diversification that has grown the market to approximately £200bn in size.
Charlie Bridgeland, a partner on the secondaries team at Lexington Partners (a Franklin Templeton subsidiary), observed that the primary driver of this decade-long expansion has been persistent liquidity constraints. "What has happened over the last ten years, the number of sellers – limited partner selling – has grown enormously, because they are not getting enough liquidity," Bridgeland noted. This structural demand reflects the mismatch between institutional investors' need for capital efficiency and the illiquidity inherent in long-duration primary fund commitments.
For pension schemes like the LGPS, secondaries present dual benefits: they deliver exposure to mature private market assets with greater transparency and shorter fund life than traditional primary commitments, while simultaneously providing a liquidity management mechanism. As LGPS pools continue to accumulate assets and institutional resources, they are positioned to become regular, systematic buyers of secondary opportunities, aligning their capital with investment structures that address fundamental portfolio management challenges.
The evolution of secondaries from a niche corner of private equity into a sophisticated institutional asset class reflects genuine structural shifts in how long-term investors manage illiquid allocations—a shift particularly relevant to pension schemes balancing return objectives with fiduciary obligations around capital preservation and accessibility.
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