The secondary market is where LP fund interests trade hands. A 2024 secondary market did over $130B in volume. Pricing is a function of NAV, vintage, sector exposure, and the buyer's view of the underlying portfolio.
LP-led portfolio sales
An LP selling its fund interest to another investor. The seller wants liquidity; the buyer wants exposure to a particular vintage or strategy at a price below NAV. The discount reflects: (1) the buyer's underwriting of the underlying portfolio, (2) the time-value of the remaining fund life, (3) the expected fee load over the remaining life, (4) the buyer's risk appetite for the specific GP and strategy.
How pricing actually works
A secondary buyer underwrites every position in the fund, models the expected exit value and timing, applies their target IRR (typically 12–18% gross), and computes the maximum bid that hits the target. This produces a number expressed as a percentage of NAV: 90¢ on the dollar, 75¢ on the dollar. A clean book of 2018 vintage buyout funds might trade at 92–95¢; a stressed book of 2020-vintage venture funds might trade at 60–70¢.
Why the market grew to $130B
Three drivers. (1) LP rebalancing: the denominator effect (Chapter 35) and pacing-model adjustments push LPs to manage exposure actively. (2) Portfolio cleanup: large LPs prune tail-end positions to free up team time and reporting load. (3) The exit drought: 2022–2024 closed the IPO and M&A windows, choking distributions; LPs increasingly turned to secondaries for synthetic liquidity. The market is now a structural feature of the industry, not a niche.