Low liquidity, growing opportunities

Against a backdrop of macroeconomic uncertainty, persistent inflationary pressures and trade threats, such as the recent US tariff announcements, private markets are facing a new inflection point. However, in such an environment, some segments of the private equity -such as the secondary markets and the mid-market- are emerging as strategic spaces for capturing value.

Secondary: liquidity where others see friction

The secondary market is no longer an underexplored corner of the private markets. In 2024, the volume traded reached a record US$ 160 billion, and current conditions suggest that the trend will continue (Page 5). The reasons are clear:

• Low distribution rates and aging portfolios and aging portfolios push investors to sell in the secondary market.
• Delays in exits (IPOs or M&As) cause LPs to seek liquidity in other ways.
• Attractive discounts and reduced competition have created opportune windows to acquire high-quality assets at significant discounts.

These factors have not only energized the market, but have also elevated this profile as an institutional portfolio management tool.

Mid-market: depth and resilience

The middle segment of the private equity has shown strong resilience in the face of volatility. Companies in this space tend to be less leveraged, less dependent on international trade and quicker to respond to structural changes. They also tend to be less leveraged, less dependent on international trade and quicker to respond to structural changes:

• There is less "dry powder"accumulated in the mid-market relative to the large-cap.

• The dispersion of returns is greater, but so is the possibility of overcoming benchmarks if the right choice is made.

In an environment where selectivity is key, working with managers with proven experience becomes essential.

Discipline, diversification and active caution

Savvy managers are taking a defensive approach: increasing liquidity, maintaining a high standard of selection and prioritizing less cyclical sectors, such as professional services, light industrials or technology with recurring models.

The goal is not just to withstand volatility, but to be in a position to act when opportunities present themselves. to be in a position to act when opportunities present themselves.

Private debtA defensive complement in the current context

In parallel, private debt has gained traction as a solid alternative to traditional fixed income return compression. In an environment of high rates and limited distribution from private equityprivate equity, investors are opting for instruments with more predictable flows. The maturity of the private debt market - including its growing secondary segment - has allowed for additional liquidity and diversification, particularly in defensive sectors such as technology, healthcare and business services.

What's next?

With more pressure on exits, longer holding periods and the need for liquidity from LPs, the secondary market could be one of the big players of the year.

And, if the economic backdrop remains tight, these vehicles could offer a gateway to quality assets at a discount, something increasingly difficult to find in overvalued public markets.increasingly difficult to find in overvalued public markets.

DISCLAIMER

Juan Manuel Alessandrini

International Funds Analyst Fynsa AGF