Second chances in private markets

For investors, the biggest hurdle in private markets is time. A decade-long lockup is a difficult sell to clients who prize flexibility. Small-cap secondaries can cut that horizon significantly. Because these positions are acquired partway through a fund’s life, cash flows often begin within months, not years. For advisors balancing long-term growth with client liquidity concerns, that feature alone makes the strategy worth a closer look. 

AJ Jain and his team at Invico Capital Corporation, has spent more than 15 years sourcing these overlooked opportunities. “When advisors look at a portfolio, they have equities on one side and bonds on the other,” he said, in conversation with WP. “We think of this strategy as in between. It smooths the cash flows and adds return without requiring a long lockup.” 

Why advisors should care 

The appeal of secondaries for wealth advisors starts with access. Advisors and their high-net-worth clients are not always able to secure allocations in top-tier private funds at first close. By the time performance is visible, those vehicles are closed. The secondary market offers a second entry point, into seasoned portfolios with track records that are easier to evaluate. 

This matters more as the market itself evolves. Secondary activity once meant reselling funds and transferring limited partner stakes. It now includes fund financing, risk transfer structures, and sales of both portfolios and single assets. Within that spectrum, Jain sees small-cap and fund-of-fund deals as especially attractive. 

“Most secondary groups today are raising large billion-dollar funds,” he explained. “These groups have to put hundreds of millions to work in each deal. For example, if a pension is selling a $2 billion portfolio, they all compete for it. But when someone wants to sell a $5 million or $2 million position, it is too small for most groups to buy. When the pool of potential bidders narrows to just a handful, we are sometimes the only buyer still at the table. That gives us flexibility on pricing.” 

That lack of competition often translates into discounts that larger buyers cannot access. “We cannot buy at ten cents on the dollar, but we can capture a larger discount because the big funds are not looking at these deals,” Jain said. 

One of the more compelling areas has been fund-of-fund secondaries. “They typically trade at deeper discounts because of the extra fee layer,” Jain noted. “For example, if a direct fund is priced at seventy cents on the dollar, that same exposure inside a fund-of-funds wrapper might trade closer to sixty. In older fund-of-funds portfolios holding ten or more underlying funds, we have seen opportunities at fifty cents on the dollar.” 

In some cases, those fee layers are no longer charged, making the discount even more attractive. “That is how we target a 20 to 25 percent IRR. It comes down to understanding liquidity timing and how long the underlying positions will last.” 

Portfolio construction benefits 

Beyond pricing, secondaries can strengthen portfolio design by improving diversification, smoothing cash flows, and shortening the road to liquidity. 

Diversification: Even modest allocations can create broad exposure. “One transaction we are doing right now has 30+ underlying funds,” Jain noted. “Even a $100,000 investment is diversified across all of them. Different managers liquidate at different times, so the cash flows are smoother.” 

Cash flow smoothing: Unlike primary commitments, which usually involve years of capital calls and delayed distributions, secondaries tend to reduce the “J-curve.” Jain said his team models liquidity timing carefully. “For smaller investors, the lockup is super important. We do not invest in things we think are going to take seven years. The deal we are doing now, we expect all of our capital to be back within two years.” 

Liquidity timing: Because secondaries are purchased midstream, investors can see returns sooner than in primaries. That makes them easier to position with clients who want private exposure but resist decade-long commitments. 

Transparency and risks 

Invico also structures its approach differently. Instead of raising blind pools, the firm identifies opportunities first, completes diligence, then shares them with advisors and investors. “Whether they invest $100,000 or $5 million, they know exactly what they are buying,” Jain said. “It is harder to operate this way, but investors value transparency and control.” 

That clarity also helps in addressing risk. “Buying at a discount is appealing, but you have to understand why something trades at a discount,” Jain cautioned. “It could be illiquidity or uncertainty about the underlying assets. We always build in a buffer. If we think capital comes back in six months, we model for a year. Investors need to understand that just because you are buying at a discount does not mean the return is guaranteed.” 

Even with those caveats, Jain sees more activity ahead. Invico is evaluating fund-of-fund secondaries with exposure to Asia and Latin America, as well as deals in litigation finance and older credit funds. “We have been doing private credit secondaries for more than ten years, before it was mainstream,” he said. “Now everybody is jumping on it.”