Private equity's evolving role amidst rising secondary market complexity

Private equity remains a compelling, if complex, allocation for long‑term investors, offering structural advantages over public markets but also distinct liquidity and transparency trade‑offs, according to an edited interview with Gabriel Ng, Managing Director of Private Equity at Neuberger Berman, published by Firstlinks.

“We believe that private equity has a role to play in an investor’s overall asset allocation,” Ng said, setting out the classic case: superior long‑run returns driven by negotiated entry terms, deeper due diligence and asymmetrical information at purchase; active operational improvement during ownership; and the ability to shape exits, via IPO, trade sale or sale to another sponsor, to maximise valuation. “We believe all these features have enabled private equity to generate higher returns over the long run,” he added, while acknowledging the higher risks, illiquidity and longer holding periods compared with public equities.

That premium is visible in broad industry comparisons. Industry data shows private equity delivered materially higher annualised returns than listed equities over recent decades, with one estimate putting outperformance at about 7.3 percentage points per year from 1999 to 2024. The decline in the number of public companies and the tendency for high‑growth firms to remain private bolster the argument that access to private markets can meaningfully broaden an investor’s opportunity set.

The current market backdrop sharpens those arguments. Ng noted public markets’ strong recent performance has concentrated returns in a handful of mega‑cap names, making private markets attractive for diversification and potentially more favourable entry multiples into desirable businesses. At the same time, fundraising has become more bifurcated: established general partners have continued to raise funds relatively quickly, while emerging managers face longer raises, average fundraises that once took 15–16 months have lengthened to about 24–25 months, he said.

That fundraising squeeze and a desire for liquidity have propelled growth in two related areas: GP‑led secondaries and semi‑liquid or evergreen vehicles. Ng described GP‑led secondaries, where a sponsor moves select assets into a continuation vehicle and brings in new capital to provide liquidity to existing limited partners, as a means for managers to hold best assets longer while crystallising distributions for LPs. “If you look at the statistics, GP‑led secondaries were a very small part of the overall secondaries market 10 years ago. But today, they represent approximately 50% of transaction volume,” he said. Market analysis corroborates rapid expansion: GP‑led activity has surged in recent years and secondaries volume is now measured in the hundreds of billions globally, with industry commentary warning structures are becoming more complex.

Neuberger Berman itself has been active in that space: the firm announced a final close of a GP‑led secondary vehicle at just over $4.0 billion, exceeding its original target, reflecting strong institutional demand for continuation and secondary strategies. The firm says it uses co‑investments and GP‑led secondaries within its semi‑liquid evergreen product to build high‑quality, cashflow‑generating portfolios and to select companies on a deal‑by‑deal basis, avoiding early‑stage, loss‑making businesses.

Evergreen and semi‑liquid funds aim to broaden access by offering lower minimums and periodic subscription and redemption windows, Ng explained, but he cautioned investors to understand the mechanics. Evergreen vehicles typically retain a cash “liquidity sleeve”, often 10–15% of capital, to meet redemptions, which can act as a performance drag. There are also redemption gates and limits as a percentage of NAV each quarter. Independent commentary echoes the tension: industry analysts note the rise of evergreen structures helps capture individual investors’ savings but warn that blending periodic liquidity with fundamentally illiquid assets can force sales at inopportune times and reduce returns.

The expanding secondary market has also become a critical source of supply for evergreens. Analysis shows the secondary market’s maturation, growth in multi‑asset continuation vehicles and an increased share of GP‑led volume, has enabled open‑ended private vehicles to deploy capital more quickly into mature, cash‑generating assets, supporting diversification and quicker scaling of AUM. Yet specialist observers caution increased complexity and retail exposure to sophisticated secondary structures may carry unfamiliar risks.

Ng summed up Neuberger Berman’s approach as patient and selective: build exposure via co‑investments and secondaries where asset‑specific diligence and conviction are possible, target profitable, cashflow‑generating market leaders, and use semi‑liquid structures to broaden investor access while accepting the trade‑offs. The company said in a statement that investors should weigh those trade‑offs and consult advisers about suitability, echoing the interview’s closing reminder that private market allocations demand longer horizons and careful manager selection.