The private equity secondary market has continued its evolution as a critical component of the investment landscape, offering liquidity and portfolio diversification in an illiquid asset class. However, as the sector matures, regulation remains a contentious topic. Opinions on whether the market requires more oversight are divided, reflecting regional and firm-specific dynamics.
The Pushback Against Additional Regulation
Our recent survey, conducted in partnership with Private Equity Wire, revealed that 80% of general partners (GPs) believe the secondary market does not need more regulation, with 14% even advocating for less oversight. The concern is that increased regulation could deter new investors, especially if it begins to negatively impact returns. Intensified regulation that affects returns could be a barrier for new investors.
This perspective highlights the need to balance regulatory measures with maintaining the secondary market’s appeal to investors. Over-regulation risks suppressing the liquidity that fuels the sector’s growth.
Regional Differences in Regulatory Preferences
Interestingly, regional disparities highlight diverse perspectives on regulation. Across the Asia-Pacific (APAC) region, 72% of respondents preferred added oversight, contrasting with Europe and North America, where the dominant sentiment was to maintain the status quo.
For firms with <$5 billion in assets under management (AUM), 65% supported current regulatory levels, indicating that smaller firms prioritize operational flexibility. Meanwhile, firms managing $5 billion or more mirrored this sentiment, though nearly 28% advocated for reduced regulation.
These regional and size-driven variations suggest that regulatory needs are not uniform, and any additional governance should be tailored to address the unique challenges faced by different stakeholders in the market.
The Case for Targeted Regulation
While most GPs call for consistency in regulatory frameworks, a minority (20%) see potential benefits in increasing oversight. Enhanced regulation could broaden the asset class’s appeal, attracting a more diverse pool of investors, including institutions and private wealth participants.
Regulatory clarity and guardrails may provide new entrants with the confidence to engage with secondary markets, thus expanding the pool of addressable capital. This is particularly relevant in APAC, where regulatory support is considered instrumental in fostering growth.
Striking the Balance
The nuanced views on regulation demonstrate the complexity of striking a balance between operational freedom and investor protection. A one-size-fits-all approach risks alienating key stakeholders within the market. Instead, adaptable frameworks that prioritize market education and transparency are likely to yield better results.
Secondary market participants continue to emphasize that maturity in this asset class requires both operational sophistication and measured regulatory evolution. With approximately $200–250 billion in secondary market dry powder, the focus should remain on leveraging the sector's demonstrated track record to unlock further capital flows.
The Path Forward
For the secondary market to thrive, a careful equilibrium must be maintained between fostering growth and instituting necessary safeguards. By addressing regional nuances and firm-specific challenges, the market can ensure that regulation serves as an enabler, not a constraint.
The debate on regulation’s role is far from over, but one thing is certain: clarity, tailored oversight and sustained market education will be pivotal in shaping the future of secondary markets.
Private equity firms navigating the intricate balance of regulatory landscapes will benefit from insight and expertise. Download the full "Secondaries in 2025: Insights for Private Equity Leaders" report to learn more.
