Myths Around Secondary Funds in PE and VC
Market insights
14 April

Secondary funds offer a different pathway for investors to enter PE and VC, and existing investors and other shareholders to get liquidity, but they're surrounded by lack of understanding of their true function. Some common misconceptions:

👉Myth 1: Secondary Funds Are Second-Rate Investments

One of the most strange myths is that secondary funds are somehow inferior to primary investments. In reality, secondary funds can offer higher returns, especially in growth investing , often with lower risk and shorter holding periods. They provide liquidity in markets that are traditionally illiquid, benefiting both sellers and buyers.

👉Myth 2: Lack of Growth Potential

Another misconception is that secondary funds lack growth potential because they invest in mature assets. These funds identify special situations and undervalued assets with significant upside, thus providing substantial growth opportunities as not only purely dependent on the company growth but also specific price arbitrage.

👉Myth 3: Only for Distressed Assets

Some believe secondary funds are exclusively for distressed assets or failing ventures. While distressed assets can be part of the mix, most secondary transactions involve healthy, growing companies that are seeking alternative liquidity solutions or portfolio adjustments.

☝️Understanding the nuances is key . The evil is in the detail: specialisation of each fund. Focus, duration , and exit strategy are all key.📈

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