Secondaries is evolving into a corporate finance business

Secondaries is developing into a corporate finance solutions business and only firms that “hyperscale” will be able to deliver returns for investors, Carlyle Group’s chief executive has said.

Speaking on the firm’s second-quarter results on Wednesday, Harvey Schwartz said: “This is where you get into the secret sauce. And by that, I mean, [secondaries] is evolving to be a corporate finance solutions business, not just secondary.”

Referring to Carlyle’s own secret sauce, he noted that the strategy is often referred to simply as ‘secondaries‘ when it in fact also includes co-investments, primaries and portfolio finance.

Carlyle’s inflows in the second quarter reached $13.4 billion, driven by activity across its Carlyle AlpInvest segment and credit strategies. Fresh capital gathered by Carlyle AlpInvest accounted for 38 percent, or $5.1 billion, of the total recorded for the quarter, according to earnings materials. This figure is larger than the $3.9 billion raised by the firm’s secondaries unit in the first quarter of the year. Realised proceeds, meanwhile, stood at $1.6 billion in Q2, almost in line with the $1.9 billion in Q1.

Carlyle AlpInvest has collected $11.4 billion for its AlpInvest Secondaries Program VIII, according to its earnings report, exceeding its $10 billion capital raising target. The fund is still raising capital, chief financial officer John Redett said on the call.

Redett had said on the firm’s Q1 2025 earnings call in May that Carlyle was expecting a final close in the middle of the year on the programme.

Net accrued performance revenues for Carlyle AlpInvest reached $627 million as of the second quarter, a 23 percent increase from $512 million as of Q2 2024.

Delivering the full breadth of Carlyle AlpInvest to investors has been “a big part of the pivot over the last couple of years”, Schwartz said on the call.

Redett, who is set to lead Carlyle’s private equity business from January, also noted during the call that demand for secondaries and its still relatively young history will continue to drive returns. He was responding to an analyst question on how the secondaries industry can continue to “generate good returns amid high volumes of capital raised and narrowing discounts available”.

“The secondaries space is growing at 40 percent per annum. I’m not going to sit here and say AlpInvest can continue to grow at 40-plus [percent] a year. But I do think we are a long way off from this being a mature industry,” Redett said.

“The growth dynamics driving the growth here, they’re just too strong. The utilisation of secondaries is very different than it was 10 years ago. A lot more people are using secondaries as a liquidity mechanism that they never had before, not just being driven by lack of realisations in corporate private equity, but more as an annual liquidity mechanism to constantly [rebalance] their portfolio.”

Secondaries will also be one of the best products from a wealth perspective, according to Redett. “When you think about it in the context of a private equity product, you don’t have a J-curve, much easier to manage. So it’s a much more diversified private equity exposure… from a wealth perspective, [this] has a tremendous growth looking forward.”