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What drives secondary returns?

Discount is an important contributor. But post-close appreciation is the biggest driver.

Secondaries play a key role in a well constructed portfolio

I very much favour including secondaries in any PE portfolio. Secondaries can be return enhancing, provide some stability, and be a source of early liquidity.

But as with everything in PE, care has to be taken. And secondaries should not be done just for the sake of having done it.

I have several thoughts on secondaries, which I will share in a more in-depth future post.

Secondary return attribution

But for now, specifically in regard to secondary return drivers, it is well worth reading this great post by Ryan Smith of Hamilton Lane.

In summary, Ryan shows that the main driver of secondary returns is post-close appreciation. And from this concludes that the quality of the GP and the portfolio are of critical importance. There is also a great chart illustrating this.

I could not agree more with Ryan’s excellent analysis and points.

Stay illiquid!


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