Investors urged to step up scrutiny of 'value trap' secondaries in semi-liquid funds

Moral hazard concerns

Investors have been urged to be wary of semi-liquid private markets funds built with secondary deals undertaken at deep discounts, which industry players have argued could materially dilute their future return potential.

As institutional fundraising slows, asset managers are rapidly creating new products aimed at the private wealth segments, resulting in the number of semi-liquid funds nearly doubling in the last five years to 520, according to Preqin. The growth of semi-liquid funds has coincided with the rapid expansion in secondary transaction volumes in recent years. Since 2017, total secondary market volumes have increased from $58bn in 2017 to $112bn in 2023, Jefferies data show.  Put simply, a secondary investment consists of buying exposure to private markets in the secondary market. These tra...