Insights & Education

What is a secondary?

Discover Pomona Capital’s Historic Impact

1

Private equity (PE) is a generally illiquid asset class that typically requires investors to commit capital to a fund for ten years or more. Years ago, limited partners (LPs) in a private equity fund had few options if they wanted to exit early from their private equity investments.

2

In the late 1980s, the private equity secondaries market emerged in response to the growing demand for increased liquidity in the inherently long-term private equity market. Pomona Capital was one of the earliest pioneers that specialized in buying secondary positions and made its first purchase in 1994.

3

A secondary private equity transaction comprises the sale and transfer of an existing LP’s interest in a PE fund (or portfolio of funds) from one investor to another. There are various reasons that have driven investors to sell their private equity interests including economic pressures, regulatory changes and portfolio management. Secondaries funds purchase the fund interests typically at a discount to net asset value.

4

Over the last decade, a dynamic market for secondaries private equity interests has flourished, driven by the increasing demand from primary investors in private equity funds seeking liquidity solutions. Simultaneously, investors have developed a greater appetite for the potential advantages offered by the secondaries investment strategy. In 2015, Pomona Capital took a pioneering role in facilitating more accessible entry to private equity for individual investors, through the launch of Pomona Investment Fund. This innovation involved the introduction of a new vehicle that effectively addressed both structural and strategic challenges in the private equity landscape.

5

The asset class continues to advance, marked by a surge in deal flow and the emergence of new transaction types, such as GP-leds and preferred equity. In 2019, Pomona successfully executed the first European structured preferred equity transaction*.

6

The secondaries market is dynamic with an influx of diverse buyers and sellers reshaping the landscape. Throughout each phase of this market’s evolution, Pomona Capital has stood as a steadfast presence, offering a reliable strategy, unwavering values, and a disciplined capacity to adapt.

What is a Secondary?
What is Private Equity?

Why invest in Secondaries?

We believe that private equity secondaries has become a core allocation for investors. Secondaries offer investors a unique entryway into private equity by acquiring seasoned fund interests at a discount to net asset value. Beyond this, secondaries may contribute various benefits of private equity to a portfolio, including potentially achieving greater longer-term returns and mitigating risk.

Potential Benefits of PE Secondaries
Reimagining 60/40 Portfolio with Private Equity

Potential Benefits for Investors

Price Discount

Price Discount

Reduced Blind Pool Risk

Reduced Blind Pool Risk

Instant Portfolio Diversification

Instant Portfolio Diversification

J-Curve Mitigation with Earlier Distributions

J-Curve Mitigation with Earlier Distributions

Shorter Holding Period

Shorter Holding Period

Accelerated Returns and Modest Volatility

Accelerated Returns and Modest Volatility