Demand for liquidity driving innovation in private markets

Liquidity has become the defining challenge in today’s private markets, and the industry is responding with a wave of innovation. These changes promise greater flexibility and adaptability – but they also introduce new risks. Read on to explore how private markets are adapting, and what this wave of structural and financial creativity means for investors.

The private markets industry is experiencing one of its most dynamic shifts in recent memory. At the core of this shift lies a pressing challenge: liquidity.

In response to mounting pressures, we’ve seen the swift rise of three key areas: 

• secondary markets; 
• NAV financing; and 
• evergreen funds. 

Each relieving the liquidity challenge from a differing angle. Below, we explore these three major advances and how clients should respond.

"At Barnett Waddingham, we believe it's vital to distinguish between innovation that creates real value and innovation that merely defers difficult decisions."

Secondaries: An engine of liquidity and opportunity

The secondary market has become a critical pressure valve, providing liquidity where traditional exits have stalled. Transactions typically fall into two categories:

• LP-led secondaries: Investors sell existing interests in funds, often at a discount.
• GP-led secondaries: Managers transfer assets into continuation vehicles while retaining control. This allows existing LP investors the choice of liquidity or a rolling investment into the new vehicle. 

"Global secondary transaction volumes in 2024 hit a record level of $162 billion, up from $60 billion in 2020."

Secondary markets are currently a buyer’s market, with many LP-led deals trading at 10–20% discounts to NAV. These discounts can offer attractive entry points, but they shouldn’t be seen as a sign of value on their own. The key is to assess the quality of the underlying assets, whether the NAV reflects a realistic valuation, and what future returns might look like relative to other opportunities. A cheap entry price doesn’t guarantee a good outcome if the portfolio is poor or the valuation unreliable. 

GP-led secondaries have gained traction from managers not wanting to sell assets but continue their ownership period. While often used to extend strong-performing assets, they can also serve to avoid losses or prioritise liquidity for select stakeholders. Key risks include:

• Valuation conflicts, since secondary managers effectively set the transfer price.
• Vintage blending, where assets from multiple funds and years are bundled together, raising fairness concerns for sellers.
• Deal failure rates, with market estimates suggesting as many as 40–50% of GP-led proposals for continuation vehicles do not successful launch, highlighting the need to carefully understand the rationale of the manager.

We believe secondaries represent a true opportunity in private markets, with the market now expanding beyond private equity into private credit, infrastructure, and real assets (see Secondaries: unlocking opportunity beyond private equity). We can support clients in navigating the secondary market both as buyers and sellers whether by accessing institutional-quality secondary funds or selling existing positions to improve liquidity. 

NAV financing: Debt on top of equity

NAV financing has also surged in popularity. These are fund-level loans secured by the NAV of the portfolio, rather than individual assets. Managers use the proceeds for a range of reasons: supporting investments, facilitating distributions or even making new commitments to future vintages.

While NAV financing can be a useful short-term tool, it introduces risk. Layering debt on top of already leveraged portfolio companies increases overall fund-level risk. In more stable market conditions, this might be manageable but in volatile markets NAV loans could amplify losses, especially if asset values decline and loan covenant are breached.

Transparency is also a concern. In many cases, fund documentation does not require Limited Partner (LP) approval before such loans are taken out, leaving investors with limited visibility or control over the decision. This lack of transparency can be troubling, particularly when NAV financing is used to support distributions or bridge commitments to future funds. However, investor pressure is growing, and we expect fund terms to evolve accordingly.

"According to Deloitte, the average loan-to-value ratios for NAV facilities sit in the 25 to 30 percent range."

We have concerns when NAV loan proceeds are solely used to inflate DPI (Distributions to Paid-In Capital) figures, LTVs are high, and the documentation is weak. LPs should be challenging GPs where these practices are being followed.

On the other hand, we believe private credit funds focused on NAV loan financing can, in the right circumstances, deliver compelling risk-adjusted returns – especially as part of a diversified credit portfolio. 

Evergreen funds: Structural innovation 

Beyond tactical solutions like secondaries and NAV financing, we’re also seeing structural innovation with the rise of evergreen funds. Unlike traditional closed-ended private equity vehicles, evergreen funds are open-ended. They allow for continuous capital raising, periodic redemption windows, and no fixed maturity. 

On paper, this structure is ideal for a wider investor base particularly defined contribution (DC) pension schemes and wealth platforms seeking flexibility and accessibility. These structures also align with the trend toward longer holding periods, enabling managers to avoid forced exits and ride out market cycles.  

However, evergreen funds are still subject to the same market pressures. Many hold the same types of assets found in closed-ended vehicles, often even the same companies. If exits are difficult, a liquidity crunch with high redemption demand can expose fragilities.

There is also a concern that evergreen funds become a convenient holding pen for hard-to-sell assets, especially as managers face pressure to deploy capital quickly. Unlike closed-ended funds, which have a finite life and performance measurement, evergreen structures can obscure underperformance over longer timeframes.

We support innovation in fund structures, but evergreen vehicles must be scrutinised carefully. Understanding how liquidity is managed, performance is measured, fees are calculated and governance is maintained is crucial. We will release deeper analysis on evergreen vehicles later this year. 

Looking ahead: Innovation with intention

As easy exits and cheap leverage recede, private markets are adapting. Innovations such as continuation funds, NAV financing, and evergreen structures offer valuable tools, but only when applied with care. 

Discernment is key. Not all innovation creates value. At Barnett Waddingham, we provide independent, research-driven insights to help clients distinguish between genuine opportunities and temporary solutions that mask underlying challenges. 

Amy Taylor, Senior Investment Research Specialist, contributed to this article.