What does the term 'secondaries' refer to in private equity?

The term 'secondaries' in private equity primarily refers to the sale of a stake in a private equity fund or portfolio. This practice allows existing investors—often referred to as Limited Partners (LPs)—to sell their interests in private equity funds to other investors in the secondary market.

The reason this is significant is that the secondary market provides liquidity to investors who may need to exit their investment before the fund's normal life cycle is complete, often spanning several years. By facilitating these transactions, the secondary market enables investors to manage their portfolios more effectively and provides opportunities for other investors to acquire stakes in established funds that may offer attractive investment risks and returns.

This practice contrasts with other options such as a new investment strategy, initial public offerings (IPOs) of private companies, or the founding of new private equity firms, which do not capture the essence of what 'secondaries' truly means in the context of private equity.