Private equity’s liquidity problem has quietly become one of the industry’s defining stories. Exit activity has picked up in places, buoyed by a handful of large transactions, but distributions to investors remain below historical norms after five years of slower dealmaking. The result: more LPs are looking for a way out, and the secondaries market is stepping in to meet them.
To understand how that market is evolving, and where the next wave of opportunity sits, we spoke with Petr Poldauf, Senior Investment Director in the Private Equity team at Schroders Capital, where he covers secondary investment activity across Europe with a particular focus on lower mid-market GP-led transactions.
Petr joined Schroders Capital in 2017. Before that, he spent four years at Montana Capital Partners as an Associate, conducting due diligence on secondary opportunities globally. He holds a Master’s degree in Quantitative Economics and Finance from the University of St. Gallen in Switzerland, a background that shows up in how methodically he talks about where value actually gets created in this market.
The Lower Mid-Market: Secondaries’ Next Big Opportunity
Private equity’s liquidity challenge has put secondaries firmly in the spotlight. Exit activity has started to improve, helped by a handful of larger transactions, but distributions remain below historical levels after several years of slower dealmaking.
For investors looking to generate liquidity and managers looking to hold onto their strongest assets longer, the secondaries market has become an important part of the answer.
Private equity liquidity continues to evolve. Exit activity has improved, helped by some large transactions, but distributions remain below historical norms after five years of slower activity. Many investors are therefore still looking for liquidity solutions.
That has reinforced the role of the secondaries market. Both LP-led portfolio sales and continuation investments are growing, and 2026 is on course to set new records for fundraising and investment.
Continuation investments especially are becoming an established part of the private equity ecosystem. Crucially, while today’s liquidity pressures have supported demand, our analysis suggests the long-term growth is mainly structural.
That growth is showing up across the market. LP-led portfolio sales are increasing, continuation investments are becoming more common, and both fundraising and investment activity continue to expand. But Petr sees something more fundamental happening beneath the current cycle.
While the difficult exit environment has accelerated demand for secondaries, he believes much of the market’s growth is likely to continue even as traditional exit markets recover.
To answer the question directly, we see a particularly attractive opportunity in the lower mid-market, which we define as small and mid-sized buyout companies with enterprise values below $1 billion. There is a large and diverse pool of potential investments, generally more favorable transaction economics, and target businesses generally have greater scope for transformational growth.
There are around 10 times as many managers and funds operating in small and mid-cap buyouts – with less than $2 billion to invest – as there are in large-cap buyouts. This creates a substantial pipeline for secondaries investing, and to be highly selective.
Where Europe Fits In
Within the lower mid-market opportunity, Europe stands out for Petr on both valuation and positioning. He sees the region as more attractively priced than the US, but the appeal goes beyond headline valuations. Europe remains a highly fragmented market, shaped by differences in language, regulation, business culture, and local networks.
Europe’s lower mid-market offers a particularly attractive entry point. Small and lower mid-market buyouts are typically priced at entry multiples three to six turns below deals at the upper end of the market.
Europe is also more attractively priced than the US, with private equity-led transactions valued at a median of around 11.2x EV/EBITDA, compared with 12.8x in the US.
That complexity can make it harder to navigate, but it also creates opportunity for investors willing to build genuine local knowledge and relationships.
The continent is a fast-maturing buyout market with attractive competitive dynamics. Its fragmented, cross-border nature rewards local knowledge, specialist expertise and experience. At the same time, the liquidity pressures affecting the wider private equity market are creating opportunities for secondaries investors to provide solutions.
Moreover, many European lower mid-market businesses have focused historically on their domestic markets. This means they have considerable scope for international expansion – and this can also insulate them to some extent from wider global volatility.
The Rise of GP-Led Continuation Investments
One of the biggest changes Petr sees in private markets is the rise of continuation investments. These are deals where a manager chooses to keep an asset for longer, rather than sell it, while giving existing investors the option to cash out or stay invested.
It would be easy to see their growth as a response to a tougher exit market. But Petr believes there is more to it than that.
We particularly favor businesses with loyal customer bases and limited exposure to highly cyclical consumer demand or technological obsolescence. Healthcare, business & financial services, technology and industrials are good examples.
In his view, continuation investments reflect a broader change in how private equity works.
Managers are becoming more flexible about how long they own their best companies, rather than feeling pressure to sell simply because a fund is reaching the end of its life.
Continuation investment volumes exceeded $100 billion for the first time in 2025 and are on track to reach another record this year. Our research suggests the market will at least triple by 2035, and growth could be considerably faster.
Although the slowdown in exits has helped, the bigger shift is structural. Our analysis suggests cyclical factors accounted for less than 10% of the record 2025 deal volume.
Private equity has been selling assets to other private equity firms for two decades through sponsor-to-sponsor buyouts, which have represented more than a third of buyout deals over that period.
A continuation investment simply changes one important element: the existing manager retains ownership. This avoids a potentially disruptive ownership change and allows the company to continue pursuing its growth plan.
Industry data indicates that, due to these factors, continuation investments can deliver returns comparable with traditional buyouts, but with more consistent outcomes, faster liquidity and, in many cases, lower fees.
As noted earlier, within this space we focus on the lower mid-market. Here we see a particularly attractive opportunity reflecting the large pool of potential investments, more favorable transaction economics in common with wider buyouts, and opportunities to drive genuine transformational growth.
Later-Stage Entry, Lower Risk?
One of the main arguments for secondaries is that investors enter later, when more information is available, and uncertainty around the underlying assets is lower.
Unlike a traditional blind-pool commitment, where investors back a manager before knowing exactly which companies will end up in the portfolio, secondaries can offer a much clearer picture of what they are buying.
One of the biggest risks in a traditional buyout fund is “blind pool” risk: investors commit capital before knowing exactly which companies the fund will acquire. Every new investment also carries the risk that the business will not perform as expected.
With a continuation investment, the company and manager are already known. The business remains with its existing owner, continues an established growth plan, and avoids a disruptive change of control. Investors can assess its track record, management team, and future plans in much greater depth.
In theory, that should mean lower risk. Investors can look at a company’s track record, understand how it has performed under its current owner, and form a more informed view of what might happen next.
But entering later does not automatically make an investment safer. Valuation, leverage, business quality, and the assumptions behind the remaining growth plan still matter.
That does not remove risk, but it can make the investment more predictable. This helps explain why continuation investments have historically shown lower loss ratios and more consistent returns.
The trade-off is that there may be fewer spectacular “home runs”. However, overall returns have compared favorably with traditional buyouts, with a more consistent return profile.
Does Mainstream Capital Erode the Edge?
Secondaries is no longer a niche corner of private markets. As the market has grown, it has attracted more capital, larger funds, and a wider range of investors.
That growth has helped make secondaries a more established part of private equity, but it also raises an obvious question: does more money chasing deals make it harder to find attractive opportunities?
As more investors enter the market and existing players raise larger pools of capital, some of the pricing advantages that historically made the strategy attractive could become harder to find.
In short, no. Historically, the main constraint on this market has been a shortage of scale and buy-side capital relative to the potential opportunity. Those constraints are now beginning to ease.
The growth of continuation investments reflects the broader maturation of private equity. What was once a niche capability is becoming a core part of the market. Investors can now conduct detailed asset-level underwriting and structure bespoke transactions alongside existing managers.
The opportunity is also far from uniform. Competition may be intense for the largest, most visible transactions, but the market becomes much more fragmented further down. In areas such as the lower mid-market, where deals can require deeper sourcing networks, local knowledge, and more detailed underwriting, having more capital alone does not necessarily create an advantage.
For Petr, then, the growth of secondaries is not simply a story of more investors competing for the same pool of deals. The pool itself is expanding and becoming more varied.
This has been positive for the market. As volumes have grown, pricing frameworks, governance standards and execution processes have become more developed. Meanwhile, the expanding pool of private equity-owned companies has created a deeper pipeline of potential opportunities.
Competition can, of course, affect pricing in individual sectors or market segments. But the overall opportunity remains substantial.
Europe vs. the US
The differences between the two regions therefore have less to do with how secondaries work and more to do with the underlying companies, managers, and deal environments.
The US remains the larger and more mature private equity market, with more capital, bigger funds, and a greater concentration of large-cap deals.
The secondaries market mirrors the private equity market; thus, differences between Europe and the US in relation to secondaries tend to reflect underlying differences between the European and US private equity markets more broadly.
The main differences include size, depth and velocity of the market, which has been significantly greater in the US, and fragmentation and regulation, with Europe appearing a more complex landscape to navigate. However, there are no underlying structural differences, and we see many attractive investment opportunities across both markets.
Europe, by contrast, is more fragmented. Its private equity market spans different countries, languages, regulatory environments, and business cultures, creating a more varied investment landscape.
That fragmentation can make Europe more complex to navigate, but Petr also sees it as part of the opportunity. Particularly in the lower mid-market, local relationships and market knowledge can matter more. Investors need to understand not just the asset itself, but the manager, the local market, and the wider context around a transaction.
In fact, the complexity that some can see in Europe can support experienced investors in having an edge. Ultimately, this is a market that is developed, increasingly mature, attractively priced, and that rewards selectivity and specialism.
CEE: A Market Still Growing
Zooming in on Central and Eastern Europe, Petr sees a secondaries market that is still relatively small compared with Western Europe, but moving in much the same direction. As private equity in the region grows and matures, secondaries are gradually becoming a more established part of the market.
The difference is largely one of scale and maturity. CEE has fewer private equity managers, smaller funds, and a more limited pool of assets than Western Europe. That naturally means fewer secondary transactions.
Although the CEE private equity market is relatively small compared to Western Europe, it follows similar patterns. The factors contributing to the strong growth of the secondaries market mentioned above are relevant for CEE as well.
Hence, we expect the local secondaries market, across LP secondaries, continuation investments and direct secondaries, to continue growing. This is important for the local PE ecosystem because an established secondaries market helps to attract additional capital, especially from Western Europe, as it provides liquidity options to investors and so reduces perceived risk.
Petr sees the same forces at work: investors seeking liquidity, managers holding assets longer, and a growing need for more flexible ways to manage private equity portfolios.
Looking Three to Five Years Ahead
Looking three to five years ahead, Petr expects secondaries to become an even more established part of institutional portfolios.
One of the biggest changes he expects is the continued growth of continuation investments. As managers become more comfortable holding strong companies longer, these transactions could increasingly replace some traditional sponsor-to-sponsor deals, where one private equity firm sells an asset to another.
We expect secondaries to become an increasingly mainstream part of private equity portfolios. Continuation investments are also likely to replace some sponsor-to-sponsor buyouts, particularly in the upper mid and large-cap market.
Large private equity firms are already responding by raising dedicated continuation investment strategies. This will bring more capital and expertise into the market, supporting further growth in transaction volumes.
At the same time, Petr expects the lines between different parts of private markets to blur. New hybrid structures are already emerging, combining elements of secondaries, co-investments, and other forms of private capital.
That could give both managers and investors more flexibility around how assets are owned, financed, and eventually sold.
We also expect continued innovation. One example could be hybrid continuation transactions, in which the existing manager retains ownership but brings in another manager with complementary skills. The incumbent might continue a successful buy-and-build strategy, while the new partner provides expertise in areas such as international expansion or preparing for an IPO.
For investors, this should create more diverse and complementary private equity portfolios. A core allocation to buyout funds could increasingly be combined with dedicated continuation funds and co-investments, alongside specialist strategies with a clear advantage in particular sectors or market segments.
The result, Petr believes, will be a secondaries market that is larger, more varied, and more closely integrated into private equity itself.
These different access points will give investors more flexibility to shape their private equity exposure around their individual objectives, including diversification, liquidity and long-term growth.
Meet Petr at 0100 Emerging Europe
Want to continue the conversation with Petr? Meet him this week at 0100 Emerging Europe, where he’ll bring his perspective on secondaries to the stage alongside Henry Potter, Partner & Co-Founder at Eastpeak Invest, and Emre Karabekirogullari, Director of Investments at Sarona AM.
Together, they’ll explore how investors and managers are adapting as liquidity, holding periods, and the role of secondaries continue to evolve across private markets.