How buy-side dynamics are shifting in the white-hot secondary market

Over the past few years, David Seifert has had a front-row seat to one of the largest transformations in the recent history of the private markets.

Seifert is a partner who leads the secondaries strategy at Velocis, an investment firm focused on real estate management. From that perspective, he’s watched the secondary market undergo an almost unprecedented period of expansion. From 2023 to 2025, secondary transaction volume doubled, reaching $226 billion last year. Compared to five years ago, total spending on secondaries has increased by 277%.

“The market keeps growing,” Seifert says. “There are more deals to look at. We are churning through a lot more than we used to.”

With more deals to look at comes more underwriting to be completed. And with more diligence processes comes a spike in the amount of data that secondary investors must collect, access, process, and analyze. If internal data systems aren’t built to scale at the same speed that the market is growing, investors may be left to make critical decisions based on an incomplete or inaccurate view of the opportunities in front of them.

“For buy-side participants, when you come across so much deal flow in your funnel, the challenge is that you can easily be overwhelmed in digesting all of that and deciphering which ones are attractive opportunities you should pursue and which ones are not,” says Simon Tang, head of U.S. for Carta LP Portfolio Analytics.

This ability to properly manage and assess the explosion of investment opportunities is emerging as a key differentiator among buy-side investors amid a torrid secondary space. Increasingly, having powerful, nimble data systems in place is one of the best ways for secondary firms to gain an edge over the competition and improve their investment outcomes.

How secondary investment firms source opportunities

During this ongoing boom in the secondary space, it can seem like potential deals are popping up everywhere buy-side investors happen to look. In general, though, investors typically source secondary opportunities through a few specific avenues.

The first of these is to work with a broker, often an investment bank that has been tasked by the seller with measuring interest in the market and helping coordinate potential transactions. A broker will typically approach a buy-side secondary investor with a potential opportunity and then, if there’s interest, serve as an intermediary between the buy-side and the sell-side as the diligence and negotiation processes unfold.

Another common sourcing mechanism is the right of first refusal (ROFR), a common contractual clause in fund agreements. If an LP wants to divest an interest in a fund that has a ROFR in place, the fund GP is typically required to present the potential secondary opportunity to existing LPs first before taking the stake onto the broader secondary market.

A third method for sourcing secondaries is to be proactive. This approach is typically rarer than working with brokers or having a ROFR, but as the secondary market matures, it’s growing increasingly common. Some investors are examining their own existing portfolios for assets to which they might want to increase their exposure and then reaching out to GPs on their own about a potential deal, before a concrete secondary opportunity hits the market. Today, this approach is most commonly seen with investments in GP-led continuation funds.

Regardless of how a secondary opportunity is sourced, once it’s discovered by an investor, that opportunity must be analyzed and assessed. This underwriting process is when a buy-side firm’s data systems and analysis capabilities are truly put to the test.

The growing importance of data-driven diligence

Different investors might approach the underwriting process for secondary opportunities with different levels of rigor. The savvy buy-side participants, though, typically dig as deep into the data as they can and avoid leaving any rocks unturned. For potential secondary fund investments, this means plumbing the depths of company-level data for each of the individual assets within a fund, examining key financial metrics such as revenue, profitability, and growth.

A single fund might hold dozens of different individual assets. And a secondary firm might underwrite a portfolio with dozens of different funds. That’s on top of the analyses that secondary firms are constantly running to monitor the health and performance of their existing portfolios.

“For an investment firm that is on the buy side, you’re having to manage a lot of data,” Seifert says. “Just by the nature of being a secondary investor, you end up having a lot of positions, a lot of exposure.”

Usually, the most time-consuming aspect of underwriting and modeling potential secondary deals is gaining access to the granular portfolio company data trapped in documents and moving that data into a firm’s proprietary models. The biggest pain point isn’t sourcing deals, running the models themselves, or forecasting performance—it’s collecting and processing the baseline information that makes those models possible while also meeting the time constraints set by the broker or seller.

With AI-powered tools that efficiently and accurately extract data from fund documents, buy-side investors can spend more time analyzing and assessing opportunities and less time trying to wrangle PDFs and spreadsheets.

This ability to accelerate underwriting can be extremely valuable when you’re in a fast-moving secondary deal process that might be over in as little as two weeks—and when you know other potential buy-side investors are trying to do the exact same thing.

“There’s definitely a competitive dynamic happening on the secondary buy-side,” Tang says.

Key variables in underwriting secondaries

For buy-side secondary investors, the single most important variable in deciding whether to pursue a secondary opportunity is typically the price. But how do firms decide what the right price should be?

At a quantitative level, secondary investors typically pore over fund-level performance metrics such as IRR, MOIC, and DPI. For underlying fund assets, they examine company-level metrics such as revenue and growth rate. They look at the net asset value (NAV) for various assets in the fund and at the methodologies that were used to arrive at those values.

But other, more qualitative factors come into play, too. In most cases, buy-side investors will have an established viewpoint—either positive, neutral, or negative—on the GP managing the fund. They will have a stance on whether the manager’s valuation process is aggressive or conservative, which will inform the assessment of NAVs. They will look at the age of the fund, and how many assets are still unrealized. They will look at how much capital has been called and how much dry powder remains. Depending on the fund’s strategy and the state of the market, having plentiful dry powder could be seen as either a positive or a negative.

Buy-side investors will also consider the fund vintage, which can provide important hints about fund performance. They will look at the specific strategic niche in which the fund is investing. They will weigh the valuation environment in which the fund’s existing investments were made.

Taken together, all these various components can paint a complete picture of how a buy-side firm should value a secondary opportunity. The right portfolio analytics tools can make it much easier to pull all this data together and to make intelligent, well-informed decisions about the potential value that each fund opportunity represents.

“You factor all those things in,” Seifert says. “And it’s not a binary thing—those variables all factor into what price we’re willing to pay.”

The ultimate question: What’s the price?

As Seifert indicates, from the perspective of a buy-side secondary investor, there’s no such thing as a potential deal that is either a definite yes or a definite no. Any opportunity could be one to pounce on, as long as the price is right.

For example, a firm might value one fund at 90 cents on the dollar as measured by NAV and a second fund at 20 cents on the dollar. In a vacuum, the first fund appears to be a higher quality and more attractive fund. But if the market price is 95 cents on the dollar for the first fund and 5 cents on the dollar for the second, then the second fund may ultimately be the more appealing secondary opportunity.

“It could be a really poor performing fund and a really low quality manager in an asset class that has not done very well,” Seifert says. “But if you can buy it for a certain price, it can still be a really good investment for you.”

Generally, pricing in secondary deals occurs at a discount to NAV. A smaller percentage of transactions occur at a premium to NAV. This typically occurs when investors think the current owner’s valuations are more conservative than they should be. And different pricing trends can prevail at different times in different sectors. If a buy-side investor is assessing opportunities across private equity, venture capital, real estate, and oil & gas, they might find very different prices in different asset classes.

So, when push comes to shove, what price should a buy-side secondary investor be willing to pay? It depends on the results of their diligence process. And the firm’s confidence in diligence processes depends on the tools and analytics that power those processes.

Carta’s LP Portfolio Analytics platform is custom built to transform this process from a time-consuming challenge into a concrete advantage. The platform is built to allow secondary buyers to operate with the speed, certainty, and flexibility that a fast-moving, multi-faceted market requires. As a buy-side investor in this rapidly evolving secondary space, you can only be as confident in your pricing models as you are in the data systems that underpin them.

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