“Would you prefer to bet on the outcome of a match at the beginning, or halfway through?” Eric Foran poses the question with the calm certainty of someone who already knows the answer. For Foran, partner at Coller Capital, this is the best analogy for understanding secondary private equity. “We are coming into portfolios of private companies typically five to seven years after the investments were made. We can evaluate performance, assess the underlying businesses and price the risk accordingly.”
The past few years have brought a liquidity drought to private markets. Many investors, particularly in traditional private equity funds, have seen exits stall. “Private equity investors simply haven’t received the liquidity they expected,” Foran told The Inside Network’s Alternatives Symposium. “The role of secondaries is to provide that liquidity when it’s needed, and in return, we buy at a discount. That’s the trade.”
The strategy has quietly evolved into a $200 billion market. “Our founder Jeremy Coller had a simple insight 35 years ago: if you commit to something illiquid, at some point you’ll want liquidity. That same insight is what drives this market today.” While the industry has grown tenfold in the last 15 years, the volume of secondary transactions has never exceeded two per cent of the unrealised value of private equity globally. “We’re just getting started,” Foran said. “If turnover increased from 2 per cent to 3 or 4 per cent, the market opportunity is remarkable.”
The appeal is about more than just liquidity. “Secondaries offer compelling risk-adjusted returns,” he says. “You’re buying diversified portfolios, by vintage, geography and manager, at a discount, with no ‘blind pool’ risk. It sits in a very attractive part of the risk-return chart.”
This isn’t theory, and it isn’t new. “We’ve been doing this for 35 years. We have the world’s biggest team dedicated to secondaries. That means we’re all over the world solving liquidity problems,” Foran said. Sometimes, that means buying portfolios of US and European buyout funds from an Asian pension fund looking to raise capital. “In those situations, we tend to get better pricing than if we bought directly from a US institution.”
The market today is split roughly evenly between limited partner (LP)-led and general partner (GP)-led transactions. “In an LP-led deal, the investor has the problem. They want to sell a portfolio, and we provide a single solution.”
GP-led transactions, however, are different. “This is where the manager wants to keep their best company, instead of selling it to another PE firm,” Foran explains. “We help set up a new vehicle, buy that company out of the old fund, and provide the investors with a liquidity option. It’s a way to let managers hold great businesses longer while still returning capital to LPs.”
Crucially, these aren’t top-dollar sales. “This isn’t a price-maximising exercise, it’s a liquidity solution. We’re not coming in at full valuation.” Foran says this gives Coller the chance to build “a portfolio of trophy companies” at attractive prices.
Naturally, not everything on offer is high-quality. “That’s our job, to separate the good from the bad. We might say, ‘we love this, this and this, but not that.’” Coller’s ability to do this effectively is what drives returns. “Our report card is performance.”
Returns are ultimately driven by two things: “The discount you enter at, and the growth of the companies you’re backing. Put those together, and that’s the return for secondary private equity investors.”
As for how investors use the strategy, Foran sees three main profiles. “First, it’s a strategic allocation. It offers diversification, shorter duration and strong internal rates of return (IRRs). Second, it’s an entry point. If you’re starting a private equity portfolio, this is a great way in, particularly with our ‘evergreen’ funds. You get immediate exposure. And third, the tactical allocators, those who see dislocation and jump in. That’s hard to do, but some try.”
Still, for all its maturity, the strategy remains underappreciated. “The awareness of this market is still in its early innings,” Foran says. “What excites me is the opportunity to offer what we’ve done with big endowments and sovereign wealth funds to a broader investor base through evergreen vehicles.” (Evergreen funds are investment vehicles with a perpetual structure, meaning they have no fixed end-date, allowing for continuous capital raising and reinvestment.)
That expansion has already begun. “Three years ago, we had zero dollars in evergreen funds. Today, we have over $3 billion and a team of 75 people focused on that part of the business.” It’s a strategy built on decades of institutional credibility, now being tailored for new markets.
“It’s never been as interesting as it is today,” Foran says. “Liquidity is scarce, but we’ve built a model that thrives in that environment. And the investors who understand that are the ones who stand to benefit most.”