The first half of 2025 has seen the continuation of a difficult period for the private equity industry in recent years. Only a few months ago, our PE Pulse market sentiment survey suggested that 2025 was likely to bring a more active dealmaking environment, leading to increased distribution flow for limited partners this year that would help unstick the private fundraising cycle flywheel. This prediction may have been premature in light of a relatively slow first two quarters for overall deal activity as well as recent market volatility.
Torys recently hosted our 2025 secondaries summit, where our panel of dealmakers in the secondaries industry noted that, against the backdrop of significant economic uncertainty, conventional PE exits remained challenged in the first half of the year. The economic headwinds in Q1 2025 led to a 13% drop in U.S. M&A, with IPOs falling nearly 18% in the same period1. H1 2025 had 1,250 fewer PE deals in the first half of the year compared to H1 2024, leading to one of the slowest overall half-year periods since 20152. While public equity valuations have generally bounced back from their lows in the first part of the year and there is renewed optimism for strategic deals at the large cap end of the market in particular, there hasn't been a strong indication in recent months that private equity's exit woes are improving—especially in the lower mid-market. While the relative stability in recent weeks could lead to a stronger H2 2025 than appeared likely earlier in the year, a similarly challenging end to the year would mean a third consecutive year of difficult dealmaking and fundraising conditions for private markets.
Where does that leave private markets?
Faced with this challenging market environment in recent years, limited partners and fund sponsors alike have increasingly turned in recent years to LP-led and GP-led secondaries markets as ways to generate liquidity through non-traditional channels. The past two years have borne that use-case out in full, showing a rapid growth in secondaries markets culminating in a record year in 2024 at $160 billion in total deal volume3. All indicators are that 2025 will continue to see similar growth in the secondaries space.
The case for secondaries remains compelling as a significant and increasingly pervasive counter-cyclical tool for liquidity in a down market. While valuation certainty remains an ongoing challenge for secondaries markets, market participants seem likely to encounter more pricing stability in the latter half of the year after a volatile H1 2025, which would help close pricing gaps for buyers and sellers. Continued outperformance by secondaries funds in an otherwise difficult fundraising market, driven in part by the rise of '40 Act funds capitalized by retail investors, has translated to significant dry powder available on the demand side of these deals. No doubt that the over $200 billion raised in the secondaries space across 2023-24 will help fuel dealmaking4. Sponsors can expect limited partners to continue to seek liquidity in a market environment where distributions from fund investments appear unlikely to free up in any sustained way in the near term.
Continued outperformance by secondaries funds in an otherwise difficult fundraising market has translated to significant dry powder available on the demand side of these deals.
With all that in mind, the current market environment may well propel secondaries to even loftier heights. At our recent panel, we were joined by representatives of a number of institutional investors and GPs, many of whom were similarly optimistic about the latter half of this year and the continued momentum in the secondaries space. In particular, they noted the counter-cyclical use case for secondaries as a tool to generate liquidity in otherwise difficult market environments.
What's next?
All these trendlines taken together mean the latter half of 2025 seems well primed for another active period in the secondaries space, with this dynamic likely to drive up activity in both the LP-led and GP-led secondaries markets. Institutional investors requiring liquidity to fund their investment programs may increasingly take matters into their own hands, exiting portfolios of fund and co-investment interests in order to free up much-needed cash. Meanwhile, fund sponsors are likely to continue their focus on using continuation vehicles to generate distribution proceeds for their investor bases. Some market observers have cited continuation vehicles as being the primary means of liquidity in today's market5 given the otherwise difficult exit conditions, and many sponsors have developed a track record in the GP-led space in recent years to draw upon. We have also seen a notable uptick in preferred equity solutions in recent months.
The first half of 2025 has been more unpredictable than many in the market were expecting. While both fundraising and traditional deal activity may remain challenged in the medium term as a result of the potential for continued economic disruption, it's not all bad news. With an influx of fundraising and participants rapidly acquiring secondaries deal experience, the secondaries market is poised to be the "release valve" for fund sponsors and limited partners who require liquidity to meet their imminent cash needs.
Footnotes
1 See Mergers & Acquisitions Magazine, "Trump Tariffs Disrupt M&A and IPO Boom, Derailing Q1 2025 Results, Analysts Say" (April 1, 2025).
2 See Financial Times, "Dealmakers hit pause on M&A as caution rules the boardroom" (July 5, 2025).
3 See Torys LLP, "Secondaries in 2025: building on a record year" (January 21, 2025).
4 See Secondaries Investor, "Behind 2024's fundraising dip" (January 9, 2025).
5 See Buyouts Insider, "HIG Capital explores options for building out secondaries strategy" (March 31, 2025).
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