How specialised can the secondaries market get?

The Secondary's market sits at a crossroads. Never before have LPs been presented with such an array of different liquidity offerings to back. They're a specialised Secondary's funds focusing on healthcare, on impact investing, on real assets in Asia or on acquiring direct minority equity stakes in companies in India. There are funds focusing on writing large checks to multi-billion dollar single asset continuation funds, and there are funds focusing on making late primary commitments to buy out funds that are still in fundraising mode. In short, if you're an LP looking to back a Secondary's fund, you're spoiled for choice. I'm Adam Lay, a senior editor at PEI Group, the parent company of Secondary's Investor. In this special episode sponsored by Evercore, Davis Polk and Dawson Partners, we sit down with advisor Nigel Dawn, legal expert Leo Lander and investment veteran Jan Robard. We discuss why the performance of continuation funds is the key to further growth and the branching out of this part of the market, and why the market is undergoing the fastest pace of innovation it has ever seen. So, how specialised can the Secondary's market get? Listen through to find out. Our guests began by giving a bit of their background in the industry, and how specialisation has evolved since they began. Nigel Dawn, a global head of private capital advisory at Evercore. I've been in this role for the last 11 years. Been an advisor in the Secondary market now for 21 years, if you can believe that. We're a global team, Chicago, New York, London and Singapore are about 130 in the team now. In terms of specialisation, I think we've gone from 20 years ago, even 10 years ago, when there was no specialisation, I would say, at all, to 5 years ago when there was a difference between GP and LP, where we are today where there's significant specialisation by asset class and by asset and by deal type. So, even though I think we're in the early innings of specialisation, there's certainly been a meaningful evolution over the last few years. Hi, everyone. I'm Leo Arland. I'm the head of the funds and Secondary's practice at Davis Polk. I've been practicing at Davis Polk for over 26 years, and I've been working in Secondary's for about 18 years. We were definitely early into the market. As far as specialisation, I sort of agree with Nigel, I guess the only thing I'd add is this is the natural maturation and evolution of the market. You know, the market, if you go back 18, 19 years ago, was pretty fragmented, very inefficient. It was basically buyers picking off sellers that needed liquidity, and what we've seen as more capital and more talent has flooded the market of the last 10 years, as we've seen a natural evolution and natural maturation, things have evolved to be more sophisticated and more specialised. I don't see that slowing down anytime soon. Yeah. So Jan Robard, managing partner at Dawson, were a global firm focused on providing structured liquidity solutions for the private equity market. We were established in 2015, after I spent about 15 years at the Canada Pension Plan investment board, and today we are 200 people, over 20 billion dollars of assets and management in Toronto, London, and soon to be in New York. I'm still very excited about that. We're celebrating our decade of Dawson this year. It is a special year for us. And look, I think that the framework for me is, if I think back to when we started Dawson back in 2015, it was really a market that was focused on LP secondaries, then the GP Les were just starting. And then the last decade, you've seen such a huge evolution and innovation in this market from just LP secondaries and the start of GP Les to GP Les really kind of taking off, but also having infrastructure secondaries, private credit secondaries, real estate secondaries, have lending, preferred equity, I'd say the lines I'm learning with GP stakes as well. And if you think about all of that innovation in just a decade, it is pretty incredible how much this market has grown, matured, specialized, and each one of those sub strategies itself is about to go through a huge growth phase. And so you think about positioning the secondary before immense growth going forward. But this in perspective, when Dawson started the secondary market was 40 billion, today we're 160 billion last year, that could droopled in just one short decade. And I think much of that led through innovation and specialization and maturation. Can I ask maybe a slightly controversial question then to Nigel and to Leo. So yeah, and you mentioned all these different types of proliferations of strategies now lending GP stakes, all those types of things, Nigel and Leo, do fundamentally agree that those types of sub strategies should be considered as part of the secondary market? I think my view it is in that, you know, this market, I think Jan referred to, it started as essentially a one size fits holes market. And you know, it was at a point where trading an LP position, you know, was a big deal and was controversial. So we've moved from that to, you know, a level of sophistication where the cost of capital now matches the secondary opportunity. So for example, investors at one point do not want to sell debt portfolios because the capital available was an equity cost of capital. So what that meant if there was a portfolio of LP interest, there was debt interest, they went for a big discount because the investor was solving for a debt cost of capital. Where we are today, of course, is there's an appropriate cost of capital to purchase debt on the secondary market, be it LP positions, be it direct positions. So I think it is a natural part of any market that the cost of capital moves over time to be appropriate for the opportunity. And I think like I said, I think we're in the very early innings of that in a sense that we, you know, we're at debt, but then you can break that down if you like, if you want to bring, you know, venture debt, senior debt, mezzanine debt. So, you know, in a sense, there's a lot of funds focused on debt secondaries. We haven't necessarily got to next iteration of the type of debt secondaries, but it gives you a sense of how far we've come. I think it's, I mean, I totally agree with that, and I think part of it is it's a vocabulary issue. This has evolved from what was really secondary trading. So we call it the secondary's market. It's really just sort of liquidity solutions, right? It's just ways to provide liquidity as the cost of capital has adjusted. It's opened up more opportunities. So when you look at navel ending, you look at GP stakes, it's really all the same problem that we are solving, just showing up in different forms. So I think, yeah, we call it secondary, but really we're just solving the same problem across different stakeholders for it started with LPs, then GP started to step in. And now the funds are taking advantage. And this is just sort of, again, natural evolution in the sophistication of the market. And I think in all of this, what's really interesting in the secondary market is what happened in the primary market, probably in the late 90s, early 2000, you would think of the primary buyout as just one asset class, and you would benchmark all of buyout, whether it was mezz or venture or large buyout or middle market buy or mega in the same way. And you do that today in the secondary market. The next step of the maturation of this is as the appropriate cost of capital comes to these sub strategies, whether it's private credit secondaries or whether it's single assets, with have a different risk return, no better, no worse, just different, then you are able to start benchmarking those sub strategies in a very different way. So it won't be long from now where at the place of just benchmarking secondaries as an asset class as a whole, you're going to be benchmarking pref equity strategies, LPs secondaries, levered LPs secondaries, multi asset continuation funds, single asset continuation funds in its own sub asset strategy. And that's what's really going to cause the capitalization, the maturation of this industry is that once we better understand the risk return of all these sub strategies, then you can allocate appropriate capital towards those sub strategies. Yeah, I think we're also seeing the pace of innovation, the pace of specialization is probably faster in this market than anything in this enough in practicing almost 30 years. And this is the fastest pace of innovation I've seen in any market anywhere. And so we're calling it specialization, I think all we're seeing is a rapid acceleration in the maturation of this market. We're going to see people pricing all these different sub strategies that Jan just went through. We're going to see people pricing differently. We're going to see people finding niche opportunities in those raising money around those. There's a lot of innovation, a lot of room kind of green field room for innovation here. And we're just seeing that happening at a very, very quick pace. How niche do you think we can get though? I mean, I usually mentioned, you know, the types of debt are different. Are you saying that maybe we might see a kind of, you know, junior lending debt focused secondaries fund at some point in the future? Is it going to get that specialized? I tend to think it will and the reason I think it will is that if you think the secondary market in private equity is perhaps 2% of the embedded AUM. There's many markets where 2% when it counts as a secondary market. So, you know, as this market gets bigger and as it gets more liquid, then I see further specialization. The example I think you're likely to see is if you take, say, GP lead transactions and then you break that down into multi-acet deals and single-acet deals. So you have single company funds being created for continuation vehicles. The next iteration is, I think, then you'll have a sector strategy secondary fund. Say, last year, I think 40% of deals also were TMT. So it's fairly natural to me that if you believe it's important to have sector expertise in underlying, you know, underwriting software companies, technology companies, the size of the market would allow for a specialized secondary market just focused on that. And then if you break that down further, perhaps then you have a specific software secondary firm. And then, you know, given the size of the market, you could go to specific software strategies. So I think where we are right now in the evolution, we're at the point where you have a single company CV fund, but, you know, imagining this in 10 years time, in the same way as Jan pointed out the evolution on a primary basis, then, you know, overall, when you think about how industries develop, the big, get bigger, the small get really specialized and the undifferentiated have a big problem. And I think as we see, you know, some of the largest multi-strategy alternative firms getting huge, it's natural that allocators will want to pinpoint capital on specialized secondary strategies to get to areas of the market that it may not be possible through a large allocator. So I just see specialization going down to the end level. Yeah. I have to say, I totally agree with that. If you, you know, Adam, you wouldn't ask us the question of, would you expect to see, you know, a European focus software primary private equity fund? Because, of course, you would, like, there's a established market for geographical specialization, sector specialization already in the primary markets, secondary markets are just trailing, you know, 10 to 15 years behind that specialization in the, in the primary markets, which makes sense. And so we're going to see that right now in the primary markets, if you're just sort of an undifferentiated buy-out mid-market fund, it's tough sledding when it comes to fundraising. It has been for a few years where the money is going is specialized people who bring sector expertise, who bring geographic expertise, like it's much easier to raise money. We're going to see the same thing happen in the secondary market over the next 10 to 15 years. And also it will take time. And that's the sequencing of the maturation of the secondary market is it doesn't happen overnight. It has to get to a point where you see that the market opportunities large enough for capital to then flow into these sub-specialized strategies, track recordings to get built over the next five to 10 years as a generalist and then can go down as sector. And so, you know, as you think about the growth of the secondary market, that is what's going to drive it. People say, what's the next innovation in the secondary market? There's already been a ton of innovation. And now it's probably the decade of specialization and capitalization rather than the decade of innovation. There is so much to do with what's already here today. What the secondary market needs is the appropriate levels of resources and the appropriate level of capitalization for it to continue down the path of specialization. Yeah. To the point Nigel made, I mean, maybe we're at 2% penetration on a rolling basis of primary AUM. We are way undercapitalized and we're aware of the resource when it comes to talent. And that needs to grow 10 years ago, single asset CVs were very nitchy. A lot of buyers were interested in doing it. It was a new thing that we were just coming up with that, you know, it was just 10 years ago. Now we've raised multiple, you know, many billion dollar funds devoted only to single asset CVs. I mean, that's how quickly this is happening. And money is going to flow in. And I think another evolution that you can start thinking about is that historically GPs have entered a company and then exited, you know, all at one time. You think about the future and think about a world where you've got maybe two or three GPs in an asset, you know, somebody enters in 2015, somebody in 2020 is an equity recap, somebody in 2022. And then maybe that, you know, 22 is recapping that 15 investor and then maybe the 20 is doing continuation vehicle on their position. And so what happens is that the company continues to operate as an entity and GPs are coming in and out of these assets at different times. And by the way, go down one level and think about co-investors into those assets. You might have a co-investor that says, I don't need to wait until the natural exit of this particular company. We might say, hey, you know, we've done two times in three years. That's good enough for us. We're going to bring that co-investment to the secondary market. So it's actually when you start thinking about the size of this market and the potential, it's just, it's limitless. And there's also broader take up, I think, in the market. The first five or six years, remember, especially on the GP lead side, it was a solution to a very sticky problem in a moment in time, right? It was a lot of angry LPs. It was GPs frustrated that their assets were hung up after the great financial crisis. People wanted liquidity. GPs didn't want to let go of the assets. So it was a solution to a sticky time. And it took five or six years, I think, for that to wash off and people to realize this is just another really strong exit mechanism. And as that's happened over, I mean, really just over the last five years or so, you're seeing broad take up among LPs, you're seeing broad take up among GPs and sponsors. You're seeing a lot of take up even kind of as buyers among institutional investors. So capital is freeing up. We're seeing demand now generated by LPs pretty broadly, demand generated by sponsors pretty broadly. Like, that's all just happening really in the last four or five years. So I think we're very, very early in, sir. I think maybe just add one more, we can only move over the pace of the LPs. I think that's the other thing that to think about 10 to 15 years, I'd say, that a sponsor to sponsor deal was anathema, like the idea of one sponsor selling to another sponsor, from an LPs perspective, was negative because, well, what could the second sponsor possibly do to improve the company after one private equity firm has spent time improving it? Now it's 50% of the market. That took a long time to get that level of acceptance, you know, level acceptance. The second market is going to be the same, and then LP, you know, is a fiduciary, you know, their job is to be conservative. So if I think about the continuation fund market, still not universally accepted, even though, effectively, it's 50% of the second market right now. There's still, you know, groups who are concerned about the conflicts and notwithstanding the guidance that Ilpa provided, it will take some time. However, it's completely different from 18 months ago in terms of understanding and acceptance I would say. And the question for most LPs now is how do we play, you know, and to work through that, you know, most LPs really need some sort of crystallized performance. We're early days in the second market for CVs. We don't really have a great crystallized track record in five years time we will. And so when there's a good benchmark to use for investment purposes, then I think there's likely to be an exponential growth, it just takes time. And you know, it will be the GPs who create the innovation, but the LPs need to accept it. Can I push back on this notion that increasing specialization in the secondary market is inevitable? I mean, what would the three of you say to, you know, an LP sitting in, you know, the Midwest, sitting in the Gulf, sitting in East Asia, sitting in Australia, who says, you know, I have a secondary allocation from our portfolio. It is for diversified, de-risked exposure to private markets. It is not for concentrated bets on single companies. You know, here's what I'd say that there will, this is to the point Nigel made before. The big will get bigger. There will always be a place for the large cap fund that is doing diversified investing. There will be a lot of LPs interested in that. But over time, as the specialization happens, we will start to see returns that are tied to specialized portfolios. We'll see people allocating at a finer, more granular levels. So I don't think that's, I think it's a false choice, right? I think there will be a lot of allocation going to large, diversified portfolios that is sort of the classic secondary investment. But as secondary is continues to become more sophisticated and more granular investment strategies, there will be separate investment these for investing in specialized strategies. I think that market evolves. I think this is a means to inject liquidity, and otherwise, you liquid asset class. I believe that if players and actors have the right process, right structure, right mindset, then what you're doing is providing more options for liquidity in private equity. And then to that LP, it's their choice as to when and how they want to lean into it. As wide open in terms of the risk returns of all these different strategies. And I think that depending on the personality of that LP, they will either be leaning forward or following into the market as those changes happens. Changes don't happen overnight, but markets do benefit from evolution. It's not always straight line up into the right, but along the way, you know, the right guidance is provided that allows it to be a positive evolution in the market. There will be examples of one that things have not gone right. And that's part of the learning process of evolution. Also, maybe to add on to that, that most investors invest in alternatives for differentiated returns. And I think that as this market continues to develop, you know, the, if you quote, quote, unquote, standard private equity, you know, as a recent some of the research would suggest there's 10 trillion more of alternatives over the next 10 years, inevitably, unless the opportunity to say increases at the same pace, returns come down. So when returns come down, I think investors look for where can I almost like find new alpha, new alpha often find, you know, comes from specialization, you know, reaching into a niche you can't get right now and can't be easily accessed by larger players for that you need additional return and essentially taking additional risk. So that's why I think from an investor's perspective, Adam, you will be interested in, you know, all things being equal, a secondary market that delivers different options, differentiated options and, you know, it's certainly in the early innings better returns. Nigel, can you give us the view from the advisory side? So a client comes to you with a specialized portfolio. Let's call it, I don't know, a TMT asset or it's a credit portfolio. To what extent are you seeing on the buy side and are you going to the dedicated sector specialist or asset class specialists first as opposed to the generalists? I was saying it if we were presented with a diversified portfolio by sector. What we have right now is the ability to differentiate the portfolio by underlying investor. So if there's a real estate component, venture capital component, we know there's a group of investors in each sector who would be interested in taking a look at that portfolio on a stand-alone basis. We would also continue to go to large players who buy portfolios of all strategies who may for whatever reason, you know, use leverage of the financial techniques to be able to, you know, take the whole cash flow profile from that portfolio and make it more efficient in a sense from a cost of capital perspective. So our job ultimately, as an advisor for our client, is to figure out where you get best execution and not going to the specific cost of capital providers for each asset class is not really, we're not really doing our job. So, you know, we would look at the portfolio buyers, sub portfolio buyers, you know, individual strategy buyers. So, yeah. And we are at the point of the market where there's sufficient depth in each of those buyer groups to make it a credible process, I would say. So I wonder if it's worth spending, you know, I'm in order to on 40 active funds. These are a type of interval fund, I guess, a semi-liquid fund, which is not closed ended, so it doesn't have to return. All of its capital back to investors after a set period of time. Well, any of you consider the existence of 40 active funds in the secondary's market as a type of specialization? I think a bit more as an innovation in the market. It's an amaturation of the market. I mean, I think it can exist separately from socialization. We can end up with specialized 40 active funds, so like I don't think it in and of itself is specialization. Because it is maturation, it is kind of reaching into different pockets for capital raising. You know, I have interval funds, which are more fixed liquidity intervals, then you have tender offer funds, which kind of intend fixed liquidity periods, but they have some discretion and kind of went in how much they provide liquidity. You know, you have some flexibility on which investor base you go to, or how retail you want to go. That'll impact what types of fees you can charge. It is, you know, in air quotes, permanent capital, in the sense that they're not closing. You don't have to keep going out to the market and fundraising. It's money that stays with you. There's no kind of known end to those funds. 40 act does come with a lot of regulatory. It is a much more intrusive regulatory regime than what people are used to, if they're used to living in the world of private funds and SMAs, like the 40 act has a lot of regulatory requirements. It's not a silver bullet. But listen, we've seen numbers that a majority of significant secondary buyers either have or are actively considering 40 act products is clearly an area where people see significant growth, significant fundraising capabilities, and we don't see that slowing down anytime soon. This is a massive innovation in the market. 40 act funds have actually been around for quite some time, but the adoption and the proliferation of them has really taken off in the last couple of years or so. I see just the major innovation of how easy it is to access private markets through one of these vehicles, if you are a high net worth investor, so writing a check and receiving a 10, 99 at the end of the year versus capital calls over a number of years and the complexity of that. So reducing the complexity allows individuals to invest, many individuals who invest in private markets where that was not an opportunity before. And so up to now, arguably, that you needed to be part of a pension fund to access private markets. And the opportunity here is that this is sort of the democratization of private markets in a sense that you can start with a relatively small investment and investment size and then access private markets. And I think that then goes to cost of capital, right? If something is so much easier to access and it attracts a lot more capital, it's pretty natural to me that that cost of capital then is likely to come down. And that is likely to impact the rest of the market if it's raised in sufficient scale. So I think it is a big innovation because it's really taken a lot of the friction out to the market that existed before. Friction allows high returns. So I think it is a huge deal. I mean, we're seeing these vehicles participate in many of our transactions, both GP and LP. And we don't see that stopping anytime soon. I think the market's north of $60 billion of AUM now, more than five billion was raised last year. I think we're going to see that accelerate for a lot of the reasons Nigel just mentioned. And further managers out there who don't run these types of funds, should they be concerned? Or is this just a further kind of opening up of the market to a wider pool of investors, opening up more deals, further maturation of the secondary's market, so to speak? I think this is an exciting area. Listen, we've been hiring building at our increasingly building at our team in the space. We think this is an exciting area. I don't think managers should be concerned. I think they should be interested and curious and looking into doing it. Accessible pools of capital, it's sticky capital, and it lines up actually pretty well with secondary's investment strategies. So like you said, the four dead funds have been around since the 40s. It's been a long time, but there, you know, I think people realizing how well they match up with secondaries and, you know, allowing more retail investor base access to this as a class that they've been reading about for a decade now is very exciting. There's a lot of pent up demand there. Okay. Very good. The big topics that we should talk about is returns. This is something, Nigel, you kind of spoke a little bit about them a few minutes ago. You mentioned that some LPs are sort of yet to see returns from investments that they've made, for example, in continuation funds, and that is maybe one of the things that is sort of preventing the further growth of the market. What evidence and data and research do we have yet about returns from specialized secondaries vehicles, either on the GP lead side or on the LP side? It may be starting with the continuation funds and ever correspond to some independent research. And I think I mentioned that performance is largely uncrystallized, largely uncrystallized. However, when compared to a similar portfolio of buyout co-investments, you know, what is coming back is that the multiple on a portfolio of continuation funds is going to be somewhat similar to a buyout portfolio. But without the volatility of returns, which is what one would expect, if firstly a GPS is selecting what they believe to be their strongest investments, where they've already done well. So for example, if this is a single company where they've already generated three times their money for their LPs, doing three times again is pretty hard, but maybe doing a double from there is possible, and I think that investment profile, that investment return profile will be a track tip to many LPs, you know, as part of their overall private equity allocation. So one would expect that the track record would be mostly crystallized in the next five years or so. But the early returns are pretty positive. Yeah, and look, I think I would say two things around this. So let's step back from continuation vehicles only and just think about the secondary market as a whole, like we discussed at the beginning, it's, you got to think about the risk return of each of these sub asset classes in order for that track record to mature at the end of the day. And for the sub asset classes to gain traction, maturation, track record, it tracks capital, and that's the sequence of events that we are going through. I still believe though, and I'm a big believer in this, the secondary market itself is vastly undercapitalized. So, you know, my stats give or take different depending on the different reports is that there's been since 2021, $500 billion deployed in the secondary market and only about $325 billion raised. Every year, there has been less capital raised than deployed, 66 cents on the dollar raised and deployed. And there's nuances to those numbers. But generally speaking, that is the state of the market. If you think about the market that did $160 billion last year and you think about maybe $200 billion of dry powder, look forward to this year if it hits $200 billion, which we believe it will this year. You know, that means you got one year as a dry powder. There is no other market where you've got that level of dry powder. So, when industry is undercapitalized, generally speaking, better assets come to market. You know, generally speaking, you've got a better opportunity to generate alpha, generate better returns. And so, I think this is, like, it's a decade of specialization, but I also think it's a decade of capitalization and we're not through the period where there can generate some interesting returns on a risk-adjusted basis if we're being honest about, like, the different strategies and what their risk returns should be, pref, versus a single asset as an example. So, I just think that we are still in a kind of a three to five year period where the market, you know, first needs to raise the capital to get a capitalized. And then as more capital comes in to play, those excess returns may diminish over time, but that's a five year from now, probably not a today problem. One of the best things about the, you know, evolution of the continuation fund market is that in the selling fund, the LP gets a choice. So, if they love the asset, they can just roll over and continue to invest, whereas right now, if that's, for example, if that's sold to another sponsor, the LP doesn't have any choice. So, you know, whether the LP is in a position to execute that choice is more of a, you know, a market moment where we are right now, you in two or three years, most LP's will be in a position to be able to execute on the option well, whereas, you know, that will take some time in some sophistication, because ill-prinous sense has set the parameters for what is an acceptable continuation fund in terms of how it's executed. And the LP's now really need to catch up in terms of, you know, just putting the processes in so they can really take advantage of the options that are being given to them. I agree, Nigel, though. I don't think it'll be two or three years. We're already seeing that happening across a lot of institutional piece, even some of that were historically resistant to GP-led transactions. So, I think it's going to be a one year, 18 months before we have a pretty significant majority of institutional LP's in a position to sort of substantively evaluate these decisions. I think what you have right now in terms of cell rates, which are high, is more the liquidity situation in the market, rather than the availability of the option. You know, over time, I think there will be a very positive development for LPs, you know, particularly because LPs have different liquidity needs. There are, you know, we talk about LPs, there's very, very different types of LPs. So giving an option, you know, rather than forcing an exit, in many cases, will be viewed very positively. Speaking about LPs for a moment, Leo, are there any sort of specific risks, I guess, from a kind of legal or even tax point of view for LPs when they are faced with these decisions with CV's? So the answer, obviously, is yes, which is why I have a job. And why we have a team of 60 lawyers who are very busy. These deals are complicated, you know, there are a lot of conflict issues, there's a lot of disclosure issues. Obviously, the regulator has been quite interested in these deals in this market. A number of years back, the head of the private funds exam unit at the SEC pulled me aside at a conference and said, you know, Leo, we just think secondaries, and especially GP lead secondaries, are the most interesting thing happening in the market right now. And I thought to myself of the 8 billion people in the world, I would love to hear that from everyone but him. But it's true. I mean, you know, when we, especially if you go back to when we started these deals, this was really untrodden ground and we were, we were walking very carefully to figure out how to process these deals. What's happened to though over the last 10 years, the industry has matured. I think a set of best practices has evolved. The LPs acting through LPA have essentially kind of agreed on a set of terms and a set of and a process that everyone is comfortable with. So I think we have done a good job removing a fair bit of that risk as long as you do it right. You know, process matters in these deals, thoughtfulness matters in these deals. You're getting the right advisors, financial advisors, getting the right legal advice, all that matters. You need experts in the space. It is its own space. So yes, there is regulatory risk and there's other legal risks and these are complicated deals. But I think there's a pretty mature and strong set of advisors out there who know how to mitigate those risks and lead people through these processes. I think what's super interesting is just the growth of the secondary market. Now that we've talked about all of these different trends around specialization, we talked about the fact that, you know, just in the last decade from 2016 to 2024, the market could ripple from 40 billion to 160 billion. But to your point, this is not a rainy day strategy. Our prior record year was 2021, which was the highest liquidity year on record at 132 billion. And that was during a high liquidity year for private equity in general. So I think that's a great point in terms of like anybody who thinks that this is like, oh, rainy day strategy, we don't want to go downside volatility. It's not just then. So then I kind of go on this vision around the secondary market and hitting a trillion dollars by 2031. And that's the prediction that, you know, I've made over the last little while. And as I look at where the market was in 2024 at 160 billion, where we believe that the secondary market could hit 200 billion this year. We can we should talk about 2025, how it started, what we're feeling, the optimism around, you know, the size of the market. But then you put into it all these specializations, you know, we talked about private credit secondary is going from 5 billion to 10 billion, just last year doubling. And think about private real estate and private infrastructure secondaries and preferred equity. And now I think all of these sub asset classes are adding to the size of the secondary market. And I just like really believe that this market has all of the tailwinds necessary to hit. The question will be, how do you define secondaries to get to that trillion dollars? But if we say, look, any sort of innovation that injects liquidity and otherwise eliquid asset class is the secondary market, then there's a real path towards that. I really believe in it. And that's despite over 21 22 23, you know, the secondary market flatlined a little bit. So people were coming to me and saying, are you still believer in that 100% because you know, it's in those period of times that the market gets educated. If you look at 2009 and 2010, market got educated around all the different tools. And then those tools got used in good times and bad. And that's what really drove that size of the market from 2010 to today. And we've just gone through an education phase right now in the market. We're going through that specialization phase on top of that. And that's going to drive capitalization. And that's going to drive volume. And that's how we get to one trillion or two trillion as some people including us. Well, I'm sticking with my one trillion. I'm not going to do yet. I mean, yeah, and is the known optimist. But I mean, let's if you look at the numbers, we did a trillion dollars this year, it's still be less than 10% penetration on private equity like AUM. So we lost 10% turnover in private capital AUM. I mean, that's not a big number. I mean, there's still single digit percentages, even a trillion. And that's today, 10 years from now, I would say one thing that, you know, when I started off, I think the market was six billion. And a couple of people asked me, why would I go into this space when it's going to be over in a couple of years? The banks will have sold. And the banks used to be 40 to 50% of LPE volume, they're now zero. So, you know, it's hard to see forward when you're, you know, you're just dealing with what you're dealing right now. And I think one of the big changes we, when we talk about the growth of the market, we talk about the growth of the market, all things being equal. But what we're not necessarily taking to consideration is moving friction out of the process. So, for example, if an LPE could more easily transact on LPE positions themselves, you know, through some sort of secondary trading market, you're likely to see a material increase in volumes. That I don't think necessarily is even built into some of the projections that maybe Jan has, you know, a lot has to be put in place, you know, for the plumbing to happen. But if we look at some derivative market, right, really took off when standard documentation was introduced is a documentation. You know, a project I worked on before secondary was FX spot trading, which used to be a voice co-line market. Now, there's FX oil trades most of the FX spot. And of course, volumes take off. So, when you take friction out of an asset class, and it's much easier to transact, then volumes tend to go up. Leo, you and your team must be spending a lot of hours on non-standardized issues and thinking that, you know, if only this market was a bit more standardized and things could be sort of processed and for your clients are a lot quicker. And I'm sure you have a view on that. I do. It's probably now what you think. We actually like complex city, and we like innovation. You think it from the lawyers perspective, it's all more interesting to work on a complicated deal where we're, we're hoeing new ground than just processing a deal that everyone knows how to do. You know, once things get really fully commoditized, they've become less interesting. And so, where we've been spending our time on innovation, you know, first it was moving, yeah, first it was just coming up with the idea of GP lead secondary is with our clients who were trying to figure it out, then moving to single asset deals and changing the structures for those. And now it's going to transition to, you know, nav financing and GP stakes and kind of succession planning a GPs. And this is where kind of the exciting stuff has happened. We talked about 40 act funds. I think that's where we're spending our time and our thinking now. Like I said before, these are complicated deals. These are bespoke deals. It is its own market. It's not a pure M&A market. It's not a pure fund formation market. It exists sort of in between all of those. And there's real specialization among the advisors and there's real complexities in these deals. There's risks that are not obvious to people who are not experts. And, you know, because of that, I think we expect that we expect that commodity real commoditization here is a ways away, especially on the GP lead side. And also it's okay if this market commoditizes because we just spent the last half hour or hour talking about the specialization of the sub asset classes. So as one part of the market gets more commoditized, then, you know, innovation and evolution will focus on, you know, more specialized needs within that. How do you inject liquidity into other parts of this market? And so this is the never ending story of the secondary market. I always talk about, you know, secondary market being the Google of private equity. It is creating, you know, new products that injects liquidity and otherwise the liquid asset class. And it pushes the market to really think outside the box in terms of how do you create new tools in the tool set? And that innovation, that evolution, as I said before, is not always straight line. It has, you know, whenever there is change in the market, there's going to be some friction. Whenever there's change, there's some learnings. And there are natural market forces that will push that innovation. I mean, one of the buy products of commoditization is lower returns. It's harder to find alpha fees get squeezed. So there's going to natural market forces that when that starts to happen, there will be scale players that will try and take advantage of commoditized products at scale. And there'll be the innovators who will be looking to find that alpha and the kind of premium priced products. And that'll always happen. And if anything, it'll spur that innovation. Not slow it down. We're entering 2025 with renewed optimism, just generally. I think private equities had a tough two, three years returns have been anemic distributions have been low. And private equity went through a bit of a moment. Like any other market, it has moments. What we're finding is as we enter 2025, a lot of the things that we're blocking deal making certainly has the ties have turned. We think of, you know, private equity has just gone the four seasons in 2022. It was the fall. It was after the summer of 21, 21 generated excess returns for private equity in 2022. The ties turned. And then 2023 was the deep winter. Things kind of came to a halt. As a Canadian, I understand the four seasons pretty well, what happened in 24? Well, the spring started coming. And so it was slow in the first half of 24. The ice was starting to melt. Then you saw the drip of the water. And by 2024, the snow was gone from your front yard. And we're entering 25 with spring in the air and the spring in the staff. And I do feel like there's just a different level of optimism. As you talk to deal makers out there, as you talk to investment bankers out there, advisors, the fluidity in the market has come back. By the way, you know, to get to $200 billion in the secondary market, you would say, well, what if distributions are coming back, isn't that going to limit the amount of secondaries required yet? Yes, but distributions are coming back. But guess what calls are starting to come to because GPS are starting to deploy capital. So LPs are going to be running on the treadmill in 2025 with more distributions, but more call staying over allocated secondary market now kind of trading and high quality by a low single digit discount. That's going to bring more people to the market as they try and tactically reallocate. And GPs are still looking at continuation vehicles as a great way to generate distributions to their LPs ahead of their next fundraise. So the necessary ingredients we think are there for an interesting 2025. And I'll just stop there. Yeah, I would reassure right now. I mean, this is a fast to start. We've ever seen to the secondary market. And it's a secondary market right now firing on all cylinders. And all cylinders being LP, GP, single asset, multi asset, you know, the likes we've never seen before. And part of that is what Yanders referenced in that distributions are coming back, you know, capital calls too. And a lot of LPs have sort of got a little bit tired of waiting for distributions from their underlying managers. And I think even as we look at the M&A market right now, distributions are probably mostly going to be back end of this year, you know, back half of this year, beginning of next year, just it takes time to sell a company. So we see a lot of LPs just taking their liquidity needs into their own hands in the face of an attractive market, I would say. So, you know, where pricing is good and, you know, good pricing generates more activity, activity generates good pricing. So, you know, I think we're on a flywheel of success here, heading towards certainly what Yandr was talking about a $200 billion year is certainly within sight. I think that should be the title of the Spark at flywheel of success. I love that. You know, so I agree. I think when we look back, you know, 21, obviously I think for all of us was probably the business that we've ever been. But it was actually a pretty narrow slice of the market that was active. It was totally dominated by high quality single asset CVs. I mean, that's what people wanted to trade in. There was a lot of nervousness around the pandemic. So as busy as it was, it was actually a very narrow market. I'm not sure it was a healthy market. When you look at it now, it's a very robust market. Tonight, at the point, we are seeing every type of deal across different industries. We're seeing a lot of variability in pricing and in products. We're seeing more fundraising in second days. It's just active and healthy at a much broader way than it was in 21. One of the measures that Dave has poked that we look at, and we obviously are reflective of the market, is how many matters do we have open? How many of our sponsor side clients are actively looking? How many matters do our buy side clients have active at the moment? And we're running right now, you know, close to double what I would view as our kind of normative numbers on both ends, like virtually all of our sponsor side clients. Are you calling a 320 billion dollar market this year? Let's go 300. Let's go 350. I'll be the optimist. I'll take over the crown. I think 200 billion is well within site and at the growth rates that we've seen, I mean, 200 is right within sort of normal growth range for this market for this year. So, and, you know, given the start we've had, the very fast start seems perfectly realistic. So a lot of optimism, Nigel, that you said that the fastest start we've ever seen, very optimistic, Jan and Leo. Adam, what about you? You mentioned some stats. That's a very interesting point. Yes. So, typically our reporting team has x amount of leads that we're chasing in the market that we're trying to convert into stories. We, I've got around 10 to 12 times more the number of leads than we typically would. So you're calling a 1.6 billion dollar market in 2025. Well, either this means, you know, our reporters are out there speaking to more people than they usually would and finding out more than they usually would or it means that the actual market is really growing. But what I hear from your gentleman is that. So I'm going to put you on the spot, Adam. Go for it. Is this going to be a 200 billion dollar year? Well, I wouldn't be one to give, you know, advice on what's actually going on in the market. But based on the conversations that I've had, it seems like that could potentially be, you know, somewhere in the bullpark. If it's a 200 billion dollar market, I'll buy you all the beer. How's that? That's amazing. On the record now. I look forward to it. Nigel, Leo and Jan, thank you so much for your time today. Thanks. Thank you. That again was Nigel Dawn of Evercore, Leo Lander from Davis Polk and Jan Robard from Dawson Partners. As always, you can listen and subscribe to Second Rees Investors' second thoughts podcast at www.secondreesinvestor.com or wherever you get your podcasts. For Second Rees Investor and PEI, I'm Adam Lay. Thanks for listening.