Private equity secondaries market backoffice readiness - RSM

The private equity secondaries market has emerged as a critical structural response to a severe liquidity crisis facing the alternative asset industry. According to RSM's analysis, the Federal Reserve's rate increases beginning in March 2022 fundamentally altered capital market dynamics, triggering an 80 percent decline in IPO activity from 2021 levels and a 62 percent contraction in traditional M&A activity through 2024. This capital scarcity has created an acute exit challenge: IPOs represented only 6 percent of U.S. private equity portfolio company exits in 2024, leaving a substantial backlog of companies requiring liquidity and institutional investors awaiting capital distributions.

Rather than a cyclical correction, the secondaries market represents a permanent shift in how private equity firms and their limited partners manage liquidity expectations. Scott Reamer of RSM emphasized that even if the IPO market doubled overnight, it would be insufficient to resolve the exit pipeline, given the volume of portfolio companies competing for traditional exit pathways. This structural mismatch between capital availability and exit options has fundamentally elevated secondaries from a niche strategy to a core component of PE operations.

The legitimacy of secondaries as a mainstream capital markets solution has been reinforced by institutional adoption at the highest levels. Endowments including Harvard and Yale have recently entered the secondaries market, validating the strategy within the institutional investor community and accelerating broader LP adoption. This shift reflects recognition that secondaries provide meaningful liquidity relief for both general partners seeking to return capital and limited partners requiring portfolio rebalancing amid a constrained exit environment.

The expansion of secondaries activity is driving operational evolution within PE firms. Back-office infrastructure and technology capabilities have become competitive necessities as firms scale secondaries participation. RSM's analysis highlights that scalable and flexible back-office operating models are essential for PE firms seeking to capitalize on the secondaries opportunity, positioning operational readiness as a material differentiator in an increasingly crowded market. The convergence of capital scarcity, institutional validation, and operational sophistication indicates that secondaries will remain a permanent feature of PE capital markets beyond the immediate cohorts of aging funds, reshaping liquidity strategies on a forward-looking basis.