Entering the Secondaries Market After Three Decades of Primary Investing

Private equity firms typically specialize in either primary investments or secondaries. Few build substantial platforms in both. After three decades focusing on primary transactions, Sami Mnaymneh announced HIG Capital would raise $1.5 billion for GP-led continuation funds, entering the booming secondaries market.

The move represents strategic expansion into one of private equity’s fastest-growing segments. Continuation funds accounted for 19% of exits in the first half of 2025, up from 13% for all of 2024, according to Jefferies data. As traditional exit markets slowed, these structures provided alternative liquidity mechanisms.

Mnaymneh serves as founder, executive chairman and CEO of HIG Capital, which manages $70 billion across seven strategies. The firm operates 19 offices worldwide and has invested in more than 400 companies since 1993. Understanding why an established primary investor would enter secondaries offers insights into market evolution and strategic adaptation.

Market Dynamics

Traditional exit markets have faced headwinds recently. Elevated interest rates curtailed both IPO activity and strategic acquisitions. Public markets remained volatile. Corporate acquirers showed restraint given economic uncertainty. These conditions extended average holding periods from 4-6 years historically to 7+ years currently.

Continuation funds emerged as solutions. These structures allow private equity sponsors to move high-performing portfolio companies from maturing funds into new vehicles. Original limited partners can exit positions if desired, while those preferring continued exposure can roll investments forward.

The approach benefits multiple parties. Sponsors retain ownership of valuable assets beyond typical fund lives. Limited partners seeking liquidity receive distributions. Those wanting continued exposure maintain positions. New investors access seasoned assets with established performance records.

This market has grown substantially. GP-led secondaries transactions reached record volumes in recent years as sponsors adapted to constrained exit environments. The opportunity attracted new entrants including firms like HIG Capital building dedicated capabilities.

Before founding HIG Capital with Tony Tamer, Mnaymneh built expertise through roles at Morgan Stanley and The Blackstone Group. He graduated first in his class at Columbia University with a B.A. summa cum laude, then earned both a J.D. from Harvard Law School and an M.B.A. from Harvard Business School with honors.

Building Secondaries Capabilities

Entering secondaries required building different capabilities than primary investing. Secondaries professionals evaluate existing portfolio companies rather than prospective acquisitions. Analysis focuses on realized performance versus projections, established management teams and proven business models.

To build this capability, HIG Capital recruited four executives from Morgan Stanley’s private equity secondaries team. Managing Director Dan Wieder leads the group, joined by Managing Director Yash Gupta and Principals Austin Gerber and Joe Holleran.

The team brings decades of combined experience in secondaries investing. Their expertise covers deal sourcing, portfolio company evaluation, pricing negotiations and fund structuring. This accumulated knowledge allows launching capabilities rather than developing expertise from scratch.

However, integrating new teams presents challenges. HIG Capital must ensure secondaries professionals understand the firm’s investment philosophy and risk parameters while respecting their specialized expertise. The team needs autonomy to pursue secondaries opportunities effectively while aligning with firm-wide standards.

Investment Strategy

HIG Capital’s secondaries fund will focus on GP-led continuation vehicles in the middle market. The firm plans to invest at least $50 million in approximately 20 single-asset continuation funds created by other private equity managers.

This middle-market focus aligns with HIG Capital’s broader positioning. The firm already understands middle-market companies through three decades of primary investing. This knowledge transfers to evaluating secondaries opportunities involving similar businesses.

The strategy targets continuation vehicles where sponsors move individual portfolio companies into new funds rather than selling to third parties. These transactions often involve companies performing well where sponsors see additional value creation potential through extended ownership.

Evaluating these opportunities requires understanding both portfolio company fundamentals and sponsor motivations. Why does the sponsor want extended ownership? What additional value creation initiatives are planned? How do portfolio company valuations compare to market comparables?

The secondaries team also assesses sponsor quality. Working with proven managers who have demonstrated value creation capabilities reduces risk compared to backing less experienced sponsors. Track records matter substantially in secondaries investing.

Competitive Positioning

The secondaries market has grown increasingly competitive. Traditional secondaries specialists like Lexington Partners, Coller Capital and Ardian have expanded substantially. Additionally, numerous primary investors have launched secondaries capabilities similar to HIG Capital’s initiative.

New Mountain Capital, Warburg Pincus, Leonard Green & Partners and other established firms have all entered GP-led secondaries. This competition has intensified pricing and reduced returns in some segments.

However, the middle-market secondaries segment may face less competition than large-cap transactions. Mega-funds focus on continuation vehicles involving billion-dollar companies. Middle-market continuation funds attract fewer bidders, potentially preserving better pricing.

HIG Capital’s existing relationships with middle-market sponsors also provide sourcing advantages. The firm has worked with hundreds of sponsors through lending relationships and co-investments over three decades. These connections may generate proprietary access to continuation fund opportunities.

Integration with Primary Strategies

How will secondaries integrate with HIG Capital’s primary investing strategies? Several potential synergies exist alongside potential conflicts.

Synergies include leveraging industry expertise developed through primary investments. Understanding healthcare, technology, business services and other sectors informs evaluation of secondaries opportunities in those industries.

The firm’s operational focus also transfers to secondaries. Evaluating portfolio companies’ operational health, improvement potential and competitive positioning applies whether investing in primary transactions or continuation vehicles.

Additionally, relationships with limited partners seeking both primary and secondaries exposure may appreciate one-stop access. Investors can commit capital across HIG Capital’s primary and secondaries funds rather than working with multiple managers.

However, potential conflicts require management. HIG Capital might encounter situations where primary strategies could acquire companies that secondaries strategies are evaluating in continuation vehicles. Clear policies must prevent conflicts and ensure appropriate information barriers.

The firm must also allocate limited partner attention appropriately. Investors have finite capacity for commitments. Raising secondaries funds while continuing primary fundraising creates competition for the same capital.

Market Timing

Launching secondaries capabilities now reflects both opportunity and necessity. The opportunity stems from market growth as continuation funds become increasingly common exit mechanisms. Early movers in new strategies sometimes capture advantages before competition intensifies.

However, market timing also reflects adaptation to changing conditions. Traditional exit markets face headwinds that may persist. Building secondaries capabilities provides alternative deployment options if primary deal flow slows.

The timing also aligns with HIG Capital’s scale. The firm manages sufficient assets to support multiple strategies without relying excessively on any single approach. A $1.5 billion secondaries fund represents meaningful but not dominant allocation within a $70 billion platform.

Additionally, the recruited team’s availability influenced timing. Attracting four experienced professionals from Morgan Stanley created opportunity to launch credibly rather than building capabilities slowly from scratch.

Fundraising Considerations

Raising $1.5 billion for a first-time secondaries fund presents challenges despite HIG Capital’s established reputation. Limited partners evaluating secondaries commitments consider factors beyond general firm credibility.

Investors assess secondaries-specific track records. The recruited team brings experience, but institutional investors prefer reviewing funds the team managed rather than just individual resumes. First-time funds often face skepticism requiring education about strategy and team capabilities.

Pricing expectations also matter. Secondaries investing typically targets returns in the mid-teens, lower than primary private equity targeting low-twenties returns. Limited partners must understand different return profiles and ensure they align with portfolio needs.

The competitive landscape affects fundraising as well. With numerous managers launching secondaries capabilities, limited partners can be selective. Differentiation becomes critical for successful fundraising.

However, HIG Capital’s existing limited partner relationships provide advantages. Investors who committed to primary funds may extend support to secondaries initiatives, particularly if they seek secondaries exposure and value working with known managers.

Looking Forward

The secondaries initiative represents meaningful strategic expansion for HIG Capital. Success would create an eighth investment strategy alongside existing capabilities. This would further diversify the platform and provide additional flexibility in capital deployment.

However, execution determines outcomes. The firm must successfully raise the fund, deploy capital into attractive opportunities and generate competitive returns. Each step presents challenges requiring sustained effort.

Market conditions will also influence results. If traditional exit markets recover, continuation fund volumes might decline as sponsors pursue sales or IPOs. Conversely, if exit constraints persist, continuation funds may become even more prevalent.

For now, the decision to enter secondaries after three decades of primary investing signals adaptation to evolving markets. Whether this strategic expansion delivers results comparable to HIG Capital’s primary strategies remains to be determined. The framework exists; execution will determine success.