Blackstone offers 11% returns after fees in six years for its flagship buyout fund, while secondaries funds deliver 19% in just four years. This performance gap explains why private equity firms are piling into the second-hand market, which saw $240bn in transactions globally last year—a sixfold increase in a decade. EQT struck a $3.7bn deal for Coller Capital and KKR bought Arctos Partners for $1.4bn, following similar moves by Ares, Apollo and CVC.

Secondaries funds generate higher returns by buying assets at discounts, holding investments briefly, and employing leverage. They often borrow from external lenders and sellers, with some deals financed with about 50% debt. While this approach amplifies returns when assets perform well, it also magnifies losses when they underperform. Accounting rules create artificially high early returns that often diminish over time.

Blackstone's secondaries fund reported 24% returns two years ago but now shows 20%. Industry executives note early annualized returns of 20-30% typically settle around 16% over time. Despite these concerns, institutional investors remain attracted to secondaries' faster cash generation and diversification benefits, though questions linger about whether retail investors understand the mechanics behind the high early returns.