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"This extra revenue stream can be leveraged via the same relationships and distribution networks that managers tap for their primary investing fundraising, and it provides clients with more a more comprehensive product offering in private markets," says Justina Deveikyte, director of European institutional research.

One of the main factors driving the number of managers with dedicated secondary investment programs in 2021 is the continued rise in assets under management of private assets and the related liquidity needs as investors seek to generate superior risk-adjusted returns.

As more investors invest in private markets, the opportunity set of secondary buyers-primarily liquidity before a fund's liquidation via trade sales and IPOs-increases, prompting more private asset managers to enter the market.

Several managers that have historically raised capital for buyout funds have now entered the secondary market. Also, many secondary market practitioners left established firms to set up their own operations.

Cerulli notes that both limited partner buyers and sellers are moving to secondaries to mitigate the J-curve and regulatory concerns, whereas general partner (GP)-led deals are being driven by the search for liquidity in high-performing assets and alternatives to traditional exit routes.

"It is also important to factor in the increasing sophistication of many institutional investors, who recognize the benefits of secondaries in portfolio construction to put money to work faster and mitigate the J-curve. Strong deal flow activity in the first half of 2021 has resulted in a decrease in available dry powder to transact on deals," says Deveikyte.

OTHER FINDINGS:

Some of Europe's investors are coming around to the view that the ability of issuers to service debt is more important than the level of debt. This shift will be a factor in opening up the fixed-income market to smart beta exchange-traded funds (ETFs). Some managers argue that smart beta factors are, in fact, more applicable to fixed income than to equity.

The green bond market's rapid growth brings with it the risk of future price corrections. Some investors are also worried that so-called greenium-the willingness of some investors to pay a price premium and forego an element of yield to support companies or governments going green-may lead to an erosion of sentiment as the scale of the market expands.