May 29, 2025 · 56m · capital-allocators
Jon Madorsky – Navigating the Evolution of Private Equity Secondaries (EP.448)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, Ted Seides interviews Jon Madorsky of RCP Advisors to examine the evolution, underwriting strategies, and future growth of the private equity secondaries market. Madorsky shares deep insights into lower middle market buyouts, GP-led continuation funds, portfolio construction, and the transformative impact of retail capital democratization.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 12.7% of the talking time here. How this is scored →
Ted as informed peer 4.9 Guest teaching 4.7 Guest disagreement 0.2 Ted pushing back 0.5
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 49:47 Critique of high-pressure secondary buyers
Jon forcefully condemns predatory tactics like ultra-short decision windows and package-deal ultimatums, calling for win-win transparency.
Hardest push from Ted ▶ 38:20 Pushback on secondary market capital demandTed challenges whether demand will keep pace with the massive wave of LP supply, prompting Jon to explain buyer expansion and sponsor entry.
Biggest teaching moment ▶ 21:10 Deconstruction of secondary return driversJon educates listeners on return mechanics, demonstrating that 80 to 85 percent of their total return stems from underlying company appreciation rather than initial purchase discounts.
Ted holds their own ▶ 13:57 Citing major endowment secondary bellwethersTed demonstrates deep institutional market awareness by probing how recent portfolio sales from Harvard and Yale signal broader structural market shifts.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Capital Allocators Team Job Announcement | 3 | 1 | 0 | 0 | Ted opens with housekeeping and a cordial welcome before asking Jon about his early life and career path. Jon shares his background in Miami and entry into RCP Advisors. | |
| The Historical Evolution of the PE Secondaries Market | 5 | 5 | 0 | 1 | Ted prompts Jon to outline the multi-decade evolution of secondaries. Jon details the market from 1990s distress and the removal of the scarlet letter post-GFC to mark-to-market accounting changes. | |
| The Emergence of GP-Led Deals and Continuation Funds | 5 | 5 | 0 | 1 | Ted asks how transactions evolved from LP-led liquidity to GP-led continuation funds. Jon explains the rebranding from zombie funds and restructurings to recapitalizations and continuation vehicles. | |
| Yale, Harvard, and Secondary Market Liquidity Solutions | 6 | 5 | 1 | 1 | Ted highlights recent high-profile portfolio sales by Yale and Harvard. Jon points out that institutional sellers like these have traded before and frames modern sales as regular liquidity management. | |
| Strategic Portfolio Rebalancing versus Distressed Selling | 5 | 5 | 1 | 0 | Ted asks how LPs use secondaries beyond distress. Jon clarifies that distressed selling is an antiquated concept and introduces his 3D framework of size, style, and value creation. | |
| RCP’s Value Creation Strategy and Underwriting Filters | 5 | 6 | 0 | 0 | Ted asks about value creation levers. Jon outlines RCP's five core filters: lower middle market focus, manager quality, asset quality, value inflection timing, and purchase price. | |
| Manager Quality Assessment and Bottom-Up Company Underwriting | 5 | 5 | 0 | 0 | Ted asks about manager assessment and bottom-up underwriting. Jon details building knockdown LBO models for portfolio companies using proprietary primary data. | |
| The Role and Future of AI in Secondary Underwriting | 5 | 5 | 0 | 1 | Ted asks about AI tools and alignment in GP-led continuation vehicles. Jon evaluates AI's current ingestion hurdles and notes that LP thirst for liquidity has mitigated valuation alignment friction. | |
| Influx of Retail Capital and Future Market Segmentation | 6 | 5 | 0 | 1 | Ted inquires about retail and 40 Act capital entering secondaries. Jon draws an analogy to public markets with retail index funds, active managers, and institutional boutique hedge funds. | |
| Market Growth Potential and PE Sponsor Entry | 6 | 5 | 0 | 1 | Ted presses on supply growth versus capital demand. Jon explains how large PE sponsors are launching dedicated GP-led strategies and expanding buyer capacity. | |
| Macro Challenges, Deal Selection, and Portfolio Construction | 5 | 5 | 0 | 0 | Ted asks about competitive positioning amid macro shifts. Jon notes a strategic transition toward less capital-intensive businesses with strong organic free cash flows. | |
| Portfolio Construction Across LP Positions and GP-Led Transactions | 5 | 6 | 0 | 0 | Ted asks about portfolio construction across LP positions and single/multi-asset GP-leds. Jon explains how multi-asset GP-leds incentivize selling weaker assets early while letting top performers compound. | |
| Fund Liquidation Timing and Ethical Market Practices | 5 | 5 | 1 | 1 | Ted asks about exit timing and predatory behavior. Jon discusses liquidating tail positions around year 9-12 and critiques aggressive secondary buyer pressure tactics. | |
| The Future of Secondaries: Proactive Sourcing and Real-Time Reporting | 4 | 5 | 0 | 0 | Ted asks what excites Jon about the future of secondaries. Jon envisions proactive asset sourcing and retail-driven daily reporting infrastructure. | |
| Personal Insights: Vintage Cars, Partnership Values, and Mentorship | 3 | 2 | 0 | 0 | Ted closes with personal questions regarding hobbies, partnership values, and future goals. Jon shares his passion for vintage car restoration and racing, long-term partnership dynamics, and mentoring. |
Statements from this episode (25)
Madorsky: FASB 157 established mark-to-market accounting in private equity
“The other piece of it was that prior to 2007, There was not a mark-to-market valuation methodology universally adopted. The NAV, the value of the position, was the lower of cost or market. Lower of the cost of market. The FASB rule of one 57 drove to a more ma…”
Madorsky: PE secondary market volume grew from $20B to $180B since 2010
“When you look at the 2010 volume, it was right around twenty billion dollars. So let's mark our growth of the industry with the volume size... So twenty billion dollars, In 2010, a 170 or eighty billion dollars in 2024.”
Madorsky: GP-led deals reached half of secondary volume by 2020
“By 2020, about half the volume was GP-led transactions and half the volume was LP transactions. Juxtapose that versus 2010, it was all LP transactions.”
Madorsky: Retail capital influx pressures fund managers toward secondaries
“I think when that capital comes into the market, there's pressure on those managers to invest it quickly, so therefore, secondaries is a natural avenue for that.”
Madorsky: Yale and Harvard secondary sales are a return to market
“Although we see in the market that Yale and Harvard are selling, this is not their first sale. It's just actually a return to them selling.”
Madorsky: Astonishing volume of PE asset sales failed in 2022 and 2023
“The amount of failed transactions that occurred in 2022 and 23 primary managers trying to sell their assets was astonishing. Effectively, unless it was a perfect asset, it wasn't going to trade.”
Madorsky: Most secondary market volume is strategic, not distressed
“In today's world, the majority of the volume that we see is probably executed around portfolio construction. And there's a lot of reasons to sell. Sometimes managers are over allocated to private equity. Limited partners are over allocated to private equity. L…”
Madorsky: Lower middle market buyouts historically outperform other PE classes
“And we also have the benefit that lower middle market, using Prequen data, that's historically outperformed all the other sub-asset classes.”
Madorsky: Up to 85% of RCP's secondary returns come from appreciation
“So much so that when you deconstruct our returns, about 80 to 85% of our total returns has been through appreciation, not through discount.”
Madorsky: AI will build initial PE financial models within three years
“In three years, certainly AI will be able to create a first or second run at our models. It might not be able to fine tune or drive a lot of the assumptions that we need the qualitative rich data that we're collecting, but to actually create and populate the E…”
Madorsky: Post-2022, LPs shifted focus from top valuations to liquidity
“But beginning in 2022, where liquidity really dried up in the market, limited partners recognized the value of the secondary market to drive liquidity in their portfolios. So, rather than saying, we don't feel like we're getting top dollar, I think a lot of li…”
Madorsky: Retail funds dominated large secondary portfolio purchases in 2024
“When we've seen a lot of the larger portfolios and even a lot of the limited partnership positions trade in 2024, the retail funds have been the main connoisseur of this product.”
Madorsky: PE will split into index, active, and boutique tiers
“I can imagine a space where private equity looks a little bit like the public equity manager market does today, where you have some people that are focused on almost like an index. That would be a pure retail product. Then you will have some folks that are cha…”
Madorsky: 40 Act funds pay 200-500 bps premium on secondaries
“Investment bankers would claim that the 40 Act funds are paying anywhere between 205 hundred basis points more than a typical fund. So it's putting pressure on the pricing.”
Madorsky: Expected 2025 secondary volume is around $190 billion
“Let's say in 2025 expected secondary volume is a hundred and ninety billion dollars, plus or minus.”
Madorsky: Secondary volume historically matches 1% to 1.5% of alternatives NAV
“Historically that Ratio, which has been the total volume over the total amount of NAV has been about one to one and a half percent.”
Madorsky: Average PE portfolio company hold period now exceeds six years
“When we first started, the average assumption on a company being held in a portfolio was four and a half to five and a half years. I think today that same assumption is probably six years plus.”
Madorsky: Secondary market volume could easily reach $400B to $600B
“Yeah, we could very easily see all of the secondary volume get to 406 hundred billion dollars.”
Madorsky: Five or more of top 10 PE firms are secondary players
“In 2010, of the top 10 biggest private equity firms globally, one or two of them were secondary players. If you look at it today, it's a handful or more. Meaning, secondary players are raising much bigger funds.”
Madorsky: Leonard Green, Advent, and New Mountain are raising GP-led funds
“A couple of them have already announced that they're raising funds, whether that's Leonard Green, Advec, New Mountain, and then a couple are quietly poking into the background.”
Madorsky: LP secondaries return capital faster and mute the J-curve
“Limited partnership or LP secondaries tend to return capital quicker. Additionally, there's a discount involved in many of the limited partnership positions. As a result, the J-curve is even more muted because we can write it up to the NAV at acquisition.”
Madorsky: Traditional PE managers cut their flowers and water their weeds
“Historically in private equity, just on the principal investing side, managers had sold their best companies very early and got stuck with their worst companies. They cut their flowers and watered their weeds.”
Madorsky: Multi-asset GP-leds enable early exits for weaker assets
“In a multi-asset GP-led transaction, we afford the availability and we push GPs to get rid of those
Weaker performing assets. Because all of the assets are getting reset at a price, and all of the economics are getting reset, if the GP sells their underperform…”
Madorsky: Actual PE fund lifespans stretch to 15 to 18 years
“It's not 10 years the life of a fund. It's not 12 years the life of the fund plus the two-year extensions. It's 15 to 18 years.”
Madorsky: Retail capital will force secondaries into customer service businesses
“I think some of those reporting mechanisms are probably going to be expected by a lot of our limited partners, especially the retail community will push that idea in a pretty acute way. So it's going to move to a business of customer service. As much as invest…”