Compounding Uncertainty or Analysis Paralysis?

 The forecasting problem at the heart of secondaries. 

The secondaries world has taken off in recent years. Estimated transaction value for 2025 was over USD 225bn, a 6x+ increase from a decade ago, and secondaries fundraising has kept pace, signaling a true interest in the market.

Source: Evercore

New entrants have entered on both the buying and selling side of this market, and the turnover rate (% of secondary transaction volume compared to private markets AUM) has remained stable at ~1%, suggesting the market still has significant room to grow.

Source: Blue Owl, Valumize Analysis

But a persistent question remains:

When you are buying a piece of a fund you don’t control, how do you forecast the exit timing and magnitude?

Every GP approaches value creation, investment timelines and fund construction differently, so how do you properly diligence each transaction? Unfortunately, this means that there is no one-size-fits-all template.

There are two main approaches:

1. Top-Down: Use the net NAV from the LP position and forecast cashflows using an applied pattern to model calls, distributions and NAV growth.
   1. Pros:
      1. Quick & easy to setup
      2. Does not require a lot of data 
      3. Many players use this for a quick first-look at a portfolio.
   2. Cons:
      1. Ignores the GP-specific nuances of carry accrual, or capital call timing
      2. Lack of asset-depth means that you could miss big changes to assets that will end up driving the transaction
         1. Multiplied across many funds in a transaction--> Compounding uncertainty
2. Bottom-up: Model exit timing and magnitude of every portfolio company in the transaction.
   1. Pros:
      1. Gives you the full view of the portfolio, allowing you to appropriately price the risk of the transaction.
      2. A full asset view gives you an indication on whether some assets are over/undervalued, potentially unlocking unseen alpha.
   2. Cons:
      1. Requires a lot of inputs.
      2. Input complexity can translate to mistakes (missed cashflows, unseen carry liabilities, overvalued assets), which negates some of the benefits
      3. Too many inputs can mean --> Analysis paralysis 

Some firms specialize in one or the other, many use both depending on the stage of the transaction. Which one is the right one to use?

 At Valumize, we think the framing of 'top-down vs. bottom-up' is the wrong debate — the real question is when each earns its place in the process. That's the problem we've built around. 

Investors out there – how do you think about modelling your portfolios?

We'd love to hear about it.