Fund-of-Funds and Real Estate Secondaries

Introduction

A closed-end real estate fund locks an investor's capital for a decade, which is a problem when the investor needs cash early or wants out before the fund winds down. Two corners of the market solve the related problems of liquidity and access. The secondaries market gives an existing investor a way to sell its fund stake before the fund ends, and fund-of-funds vehicles give smaller investors a diversified way in across many managers at once. Both have grown rapidly: the global secondary market hit $103 billion of volume in the first half of 2025, up 51% year over year and on pace to exceed $210 billion for the full year. Together they round out the plumbing of private real estate, providing the liquidity and diversification that the basic fund structure lacks.

A secondary transaction is the sale of an existing interest in a private fund or its assets, rather than a fresh investment into a new fund. It comes in two distinct flavors, and the distinction matters because they are driven by opposite sides of the partnership.

Continuation vehicle

A new fund created by a general partner to buy assets out of one of its existing funds, allowing the GP to hold prized assets beyond the original fund's life while giving the original investors a cash exit. It is the defining structure of the GP-led secondary market and a way to return capital to limited partners without selling a trophy asset to a competitor.

In an LP-interest secondary, an investor that wants out sells its fund stake to a secondary buyer, who steps into its shoes as a replacement limited partner. The seller gets early liquidity in an otherwise illiquid asset, and the buyer gets discounted access to a mature, partly de-risked portfolio with a shorter remaining life. GP-led deals work from the other side: the manager creates a continuation vehicle to buy assets out of an aging fund, returning capital to the original investors while keeping the assets it wants to hold. GP-led activity has exploded, reaching a record $47 billion of volume in the first half of 2025.

A fund-of-funds takes a different approach to the access problem. Instead of buying existing stakes, it commits fresh capital across many managers' funds, giving its own investors a single, diversified position in private real estate.

Fund-of-funds

An investment vehicle that invests in a portfolio of other managers' funds rather than directly in assets, giving its investors instant diversification across many managers, strategies, and vintages. The cost of that diversification is a second layer of fees, charged on top of the underlying funds' own management fees and promotes.

The appeal is diversification and access for investors too small or unsophisticated to build their own program of fund commitments. A modest pension or a family office can write one check to a fund-of-funds and gain exposure to a dozen underlying managers it could never reach or diligence on its own. The drawback is the double fee layer: the investor pays the fund-of-funds manager on top of the fees the underlying funds already charge, which is why large, sophisticated investors usually bypass them and commit directly to funds or build separate accounts instead.

Both structures exist to fix what the basic fund cannot: the secondaries market supplies liquidity to an illiquid asset class, and fund-of-funds supply diversification to investors who lack the scale to build it themselves. The growth of dedicated secondary capital, a record $302 billion in mid-2025, shows how central the liquidity function has become, especially as a tight market left many investors needing exits before their funds matured.

Secondaries and fund-of-funds have become a growing source of advisory work in their own right, from running GP-led continuation-vehicle processes to advising LPs selling large portfolios of fund stakes. As private real estate has matured, the machinery for recycling capital out of old funds has become as important as the machinery for raising new ones, which is why the secondaries market keeps setting records even when primary fundraising slows.