Lexington’s Warren: Secondaries still only ‘a drop in the bucket’ for LPs’ liquidity needs

Unrealised NAV sitting in PE funds will ‘get bigger over the next five years before it shrinks’, according to the firm’s president Wil Warren.

The secondaries market is poised for long-term growth as it addresses structural challenges faced by institutional LPs, according to one of Lexington Partners‘ top executives.

While the trend of low distributions has slightly improved for LPs, the large amount of unrealised value in private equity funds will continue to push them to seek liquidity in the secondaries market, Wil Warren, president and cochair of the firm’s secondary investment committee, said at the CAIS Alternative Investment Summit in Los Angeles last week.

Cash yields on unrealised net asset value averaged around 25 percent between 2014 and 2021, meaning LPs could typically expect to receive about one-quarter of their capital back from GPs within a year, Warren said during an onstage discussion moderated by Secondaries Investor. That figure plunged to 9 percent in 2022 amid rising geopolitical tensions and surging interest rates, he added.

“You have this period where… institutions were overcommitted. The music stopped and that expectation of liquidity significantly changed,” Warren said. “In the last three years, that distribution rate has [stayed] between 9 and 12 percent. We are still not even halfway back to where institutions were used to [regarding] their expectations of liquidity.”

Roughly $3.6 trillion of unrealised value was tied up in 29,000 unsold companies in private markets last year, according to Bain & Co’s Global Equity Outlook 2025. Even as the secondaries market expands at a record pace, “it’s still a drop in the bucket of liquidity that’s necessary to return capital, feed the institutions and feed the overall growth of the private equity market”, Warren said.

“When we run our models, even if you have recovering distribution rates up into the high teens, which seems a long way from where we are… that pile of unrealised NAV under those assumptions [with] just a modest compounding of value assumption gets bigger over the next five years before it shrinks.”

The growth of the secondaries market has been driven by rising private market commitments from institutional LPs and a higher turnover rate, Warren said. The turnover rate – which is the share of original investors in PE drawdown funds who sell before the funds reach maturity – has increased from less than 1 percent to 12.5 percent in the past 30 years, Warren added.

Transaction volume in the secondaries market reached $102 billion in the first half of this year, the highest on record for any half-year period, according to Evercore’s H1 2025 Secondary Market Review. This figure surpassed most full-year totals from the past decade, the report noted.

LP-led transactions accounted for $54 billion – or 53 percent – of total volume in the first half, up from $41 billion during the same period in 2024 and $25 billion in H1 2023, according to the report. The rise was driven by a broad range of sellers – including pensions, endowments and family offices – turning to the market to adjust exposures, mitigate denominator effects and enhance portfolio flexibility, according to Evercore’s report.