Why are secondaries often purchased at a discount?

Secondaries are often purchased at a discount primarily because sellers require quick liquidity and the associated risks are factored into the pricing. When investors decide to sell their interests in secondary markets, they might be doing so due to a need for immediate cash or to rebalance their portfolios. This urgency can lead sellers to accept lower prices to complete transactions quickly.

Moreover, the nature of secondary investments often involves inherent uncertainties, such as the quality of the underlying assets or the performance of the funds involved. Buyers are aware that these investments may not be as appealing as primary investments and that they might entail risks not typically encountered with initial purchases. Therefore, to compensate for these risks and the need for immediacy from sellers, buyers will typically negotiate a lower price, leading to the common occurrence of discounts in secondary transactions.