There has been a significant shift in buyers’ sector interests in the GP-led space amid technology disruption fuelled by concerns over the impacts of artificial intelligence, according to Houlihan Lokey.
Over two-thirds of 58 secondaries buyers and sellers polled by the investment bank between mid-November and end-January identified technology as an industry they favoured at the time, coming second only to business services with a marginal preference shown.
Over the past five years, growth investments – especially in technology – were strongly favoured by continuation vehicle investors Houlihan Lokey worked with, Michael Pilson, managing director in its capital solutions group, told Secondaries Investor, adding: “This has indeed undergone a dramatic shift in a very short amount of time.”
As a result, some sectors are becoming more attractive to buyers looking to fill that gap. Houlihan Lokey is already seeing evidence of industrials and low-tech assets drawing interest, “as evidenced by comments like ‘this is what CV LPs are looking for now’ when referring to old-economy portfolio assets”, Pilson said.
Transactions were being paused and pulled due to the technology disruption before the beginning of this month, Secondaries Investor previously reported.
Co-existence
While there may be a pause in activity in Q2 as the secondaries market prices in risk and digests Q1 marks affected by tech disruption, the outbreak of conflict in the Middle East could end hopes of an improvement in the M&A market, as Secondaries Investor reported this month.
An improved market for M&A and IPOs was identified by 30 percent of respondents to Houlihan Lokey’s Secondary Investor Survey as a factor that could drive a volume decline in the secondaries market. Furthermore, 20 percent of respondents indicated that a widening bid-ask spread and a slowdown in secondaries fundraising or deployment could slow activity.
Houlihan Lokey does not believe an improved exit environment will dampen transaction volume, with Pilson noting that managers have long been looking for ways to extend their ownership of prized assets.
On the contrary, the bank is starting to see permanent capital LPs like sovereign wealth funds and pensions encouraging managers to establish longer duration CVs “well beyond the five- to seven-years typical life”, Pilson said.
“It is inevitable that the GP-led market will expand its scope to include not just trophy assets but also portfolio companies that have been slow to develop for various reasons.”
Return expectations
The majority of respondents expect both their multi-asset and single-asset CVs to return a multiple of around 2x invested capital, according to Houlihan Lokey’s report.
The report shows more than two-thirds of investors in multi-asset CVs target average net returns of 2x or higher, while nine out of 10 single-asset CV investors target net returns of 2x or more. Nearly a quarter of those target net returns of 2.5x or higher.
Evercore and the HEC School of Management in Paris’s Q2 2025 Continuation Fund Performance Report found that top-performing single- and multi-asset CVs in 2018-24 vintages delivered an average net internal rate of return of 23.6 percent and an average total value to paid-in ratio of 1.52x. These funds have delivered an average distributed to paid-in ratio of 0.278x over the same period.
There is “no question” that both single- and multi-asset CVs can deliver the return projections outlined in the report, Pilson said.
“We articulate an expected performance dispersion of 1.5x to 2.5x, with less than 25 percent of respondents expecting 2.5x. We are finding that many of the successful CVs fall into the ‘more of the same’ category. This implies that the return profile for the next three to five years is simply a continuation of the last three to five years. Thus, these transactions are generally oversubscribed and highly sought-after.”