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A Brief Explanation of Secondary Funds Definition

A secondary fund is a partnership that specializes in acquiring assets and securities through the secondary market, rather than the primary market. In other words, a secondary fund is composed of assets that have been purchased directly from other investors, rather than from the underlying company itself. Secondary funds are common in private equity, venture capital, and hedge funds.

In private equity, a secondary fund could be attractive to an investment manger or investor for many reasons. Ownership in an existing private equity fund can be purchased directly from another investor at a discount, if the initial investor is facing a credit crunch. This was extremely common during the 2008 financial crisis. Moreover, it can allow an investor to gain exposure to a fund that has been closed to additional investors and allows an investor to exit an investment prematurely if he or she needs to.

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