Barings’ Ian Wiese on Secondary Market Investment Strategies Shifts

David Brooks
6 Min Read

The secondary market for private equity investments has transformed dramatically in the past decade, emerging as a sophisticated strategy for institutional investors seeking liquidity and portfolio optimization rather than merely a distressed asset playground. In a recent interview, Ian Wiese, Managing Director of Portfolio Finance at Barings, provided valuable insights into how this market has matured and where it’s headed.

“The secondary market has evolved from primarily being a solution for distressed sellers to becoming a portfolio management tool,” Wiese explained during our conversation. This shift represents a fundamental change in how institutional investors approach private capital allocations.

Data supports this evolution. According to Jefferies’ recent Secondary Market Report, transaction volumes reached $108 billion in 2023, demonstrating remarkable resilience despite broader economic headwinds. The secondary market’s expansion reflects growing institutional acceptance and strategic implementation rather than opportunistic trading.

Wiese highlighted continuation funds as one of the most significant developments reshaping the landscape. These structures allow general partners to extend ownership of specific assets beyond traditional fund lifespans while providing liquidity options for limited partners. “Continuation vehicles have created an elegant solution for managers to hold onto their best-performing assets while still delivering returns to investors who want liquidity,” he noted.

The Financial Times recently reported that continuation funds now represent approximately 35% of secondary transaction volume, up from less than 10% five years ago. This growth trajectory shows no signs of slowing as both GPs and LPs recognize mutual benefits.

Another important trend Wiese identified is the proliferation of specialized secondary strategies. “We’re seeing much more targeted approaches focused on specific sectors, geographies, or investment profiles,” he said. This specialization allows buyers to leverage domain expertise and potentially extract greater value from acquired positions.

The increasing sophistication of secondary market participants has driven innovation in transaction structures. Traditional LP stake sales now represent only about half of total volume, with GP-led transactions, preferred equity solutions, and hybrid structures gaining significant traction. According to Greenhill’s Global Secondary Market Review, GP-led transactions accounted for 47% of total secondary volume in 2023, a substantial increase from just 25% in 2019.

Pricing dynamics have also evolved considerably. “The discount-to-NAV paradigm has been replaced by a much more nuanced approach to valuation,” Wiese observed. “Buyers are conducting thorough diligence on underlying assets and developing independent views on future performance rather than simply applying standardized discounts.”

This sophistication has attracted a broader range of investors. Traditional secondary specialists now compete with direct private equity investors, sovereign wealth funds, family offices, and even some pension plans implementing direct secondary programs.

Perhaps most telling is how secondaries have become integral to portfolio construction rather than opportunistic investments. “Many institutional investors now have dedicated secondary allocations as part of their private markets strategy,” Wiese explained. “It’s no longer viewed as an alternative approach but as a core component of a sophisticated private market portfolio.”

This institutionalization has implications for market structure. Secondary funds have grown significantly in size, with several prominent managers raising dedicated vehicles exceeding $10 billion. According to Preqin data, secondary-focused private capital fundraising totaled $39.7 billion in 2023, demonstrating continued investor appetite despite broader fundraising challenges.

Technology and data analytics have further transformed the secondary landscape. “The information asymmetry that historically defined secondaries has decreased substantially,” Wiese noted. “Buyers have much more robust data and analytical tools to evaluate opportunities, which has increased market efficiency.”

Looking forward, Wiese identified several trends likely to shape the secondary market’s continued evolution. “We expect to see further specialization among buyers, more innovative transaction structures, and increased focus on operational value creation post-acquisition,” he predicted.

Climate considerations and ESG factors are also increasingly influencing secondary transactions. “We’re seeing meaningful incorporation of sustainability metrics in secondary due diligence and valuation,” Wiese said. This trend aligns with broader shifts in institutional investment priorities.

The secondary market’s growth also presents challenges. Increased competition has compressed returns in some segments, prompting buyers to explore less trafficked areas of the market. Regulatory considerations, particularly around GP-led transactions, have also gained attention from bodies like the SEC, which recently proposed enhanced disclosure requirements.

Ultimately, the secondary market’s evolution reflects private capital markets’ broader maturation. What began as a niche, often distressed-focused corner of alternative investments has become a sophisticated, liquid, and strategic component of institutional portfolios. As Wiese aptly summarized, “The secondary market today serves critical functions for both buyers and sellers, creating liquidity, optimization opportunities, and strategic flexibility that simply didn’t exist in private markets previously.”

For investors navigating today’s complex economic environment, understanding these secondary market dynamics provides valuable perspective on how private capital strategies continue to adapt and evolve.

Share This Article
David is a business journalist based in New York City. A graduate of the Wharton School, David worked in corporate finance before transitioning to journalism. He specializes in analyzing market trends, reporting on Wall Street, and uncovering stories about startups disrupting traditional industries.
Leave a Comment