The Secondary Market Is $240 Billion Now. Houlihan Lokey Says That Changes How You Have to Think About NAV.

A new white paper argues that "NAV squeezing" is being misread — and that the real problem is an industry still applying a thin-market framework to a mature one.

Every time a secondary transaction closes below a fund’s reported net asset value, someone calls it NAV squeezing. The implication is usually the same: either the seller accepted a bad deal, or the GP’s reported values are inflated, or both.

Houlihan Lokey’s Portfolio Valuation and Fund Advisory Services practice published a white paper this month pushing back on that framing. Their argument is precise and worth reading carefully, because it reframes the debate in a way that has real implications for how LPs, GPs, and fund administrators think about reported values in an era of active secondaries markets.

The Distinction That Changes Everything

The paper opens with a deceptively simple observation: secondary transaction prices and reported NAV are not measuring the same thing.

Reported NAV, when used as a practical expedient under ASC 820, reflects the GP’s aggregated asset-level valuation of the underlying portfolio. Secondary transaction prices reflect the value of the LP interest itself — which incorporates not only the portfolio value, but also liquidity premium demanded by the buyer, distribution timing assumptions, fund fees and carried interest treatment, and buyer-specific return requirements.

These are two distinct valuation exercises serving two distinct objectives. Treating the gap between them as a straight discount to a common benchmark — as market commentary routinely does — is, the paper argues, an oversimplification that obscures more than it reveals.

This matters because the conclusion that follows from the oversimplification is also wrong. A transaction closing at 85 cents on the NAV dollar is not automatically evidence that the NAV is inflated. It may simply reflect the structural cost of buying an illiquid LP interest from a motivated seller in a single transaction.

What the $240 Billion Number Actually Changes

Here is where Houlihan Lokey’s argument becomes more consequential for the secondaries market specifically.

The paper acknowledges that secondary transactions were historically treated as having limited evidentiary weight for fair value purposes. When the market was thin, opaque, and dominated by distressed sellers, that made sense. A handful of idiosyncratic trades tell you very little about what a portfolio is actually worth.

That market no longer exists. Global secondary transaction volume reached approximately $240 billion in 2025, per Jefferies, representing a substantial increase over prior years and involving a broad, sophisticated participant base. The secondaries market is now, by any reasonable measure, a functioning price discovery mechanism — not a residual outlet for forced sellers.

The implication the paper draws: a valuation framework that was calibrated for a thin, distressed market cannot simply be carried forward unchanged into a market of this scale. Observable secondary transaction data now exists in sufficient volume and quality that systematically ignoring it is harder to defend as a matter of accounting principle.

Under ASC 820, the practical expedient that allows investors to use reported NAV as a proxy for fair value is a measurement election, not a blanket exemption from further analysis. The standard already contemplates that judgment is required — and that observable market evidence may require a closer look at whether reported NAV remains consistent with fair value principles. Houlihan Lokey is arguing that in 2026, that evidence exists and cannot be waved away.

GP-Leds Add a Specific Wrinkle

The paper draws a distinction between LP portfolio transactions and GP-led deals that is worth flagging for secondaries practitioners.

GP-led transactions — continuation vehicles in particular — have expanded the volume of observable secondary pricing data. But they have also introduced a specific complexity: where the same GP acts as both the sponsor of the continuation vehicle and the manager of the legacy fund, the potential for conflicts of interest may compromise the assessment of whether the transaction reflects orderly, arm’s-length pricing.

This is not a new concern in the industry, but it is notable that a major valuation advisory firm is now explicitly naming it as a factor that complicates how much evidentiary weight GP-led transaction prices can carry. A CV pricing that results from a compressed process with limited competition is a weaker data point than a competitively run LP portfolio sale.

How to Actually Read the Discount

The paper’s most practically useful section addresses how to distinguish a liquidity discount from a genuine market signal about NAV accuracy — a distinction that currently gets very little rigorous treatment in industry commentary.

The paper’s framework: a single transaction at 10–15% below NAV in a thin or relationship-driven process tells you almost nothing about whether the NAV is right. Repeated transactions at similar or wider pricing differences across multiple competitive processes, over time, with sophisticated buyers on both sides — that is a different signal entirely. That pattern is harder to explain as a liquidity premium and may warrant closer scrutiny of the underlying valuation assumptions.

The conclusion is deliberately anti-mechanical: observed pricing differences are signals requiring analysis, not inputs to be applied directly. There is no formula that converts a secondary discount into a NAV adjustment. That judgment belongs to preparers and their advisors, and it has to be grounded in the specific facts of each situation.

The Conflict of Interest in the Room

It would be incomplete to cover this paper without noting what Houlihan Lokey does for a living. Their Portfolio Valuation and Fund Advisory Services practice offers, among other things, “Continuation Vehicles and Transaction Opinions” — i.e., exactly the kind of rigorous third-party valuation analysis the paper argues the market needs more of.

The paper’s conclusion — that a $240 billion secondary market demands more disciplined engagement with observable transaction data, supported by clear documentation and professional judgment — is also a description of the services Houlihan Lokey sells. That does not make the argument wrong. But it is the kind of conflict that Secondary Scoop readers are entitled to weigh when evaluating the paper’s recommendations.

For what it is worth, the technical analysis in the paper is sound. The distinction between LP interest valuation and asset-level NAV is real and consistently underappreciated in market commentary. The point about transaction volume crossing a threshold where it can no longer be routinely dismissed is well-supported. And the refusal to propose a mechanical discount adjustment is intellectually honest in a way that self-serving research often is not.

What This Means for the Market

The paper does not propose a change to existing accounting standards. It is not calling out any specific GP for inflated NAVs. What it is doing is making the case that the analytical framework for thinking about fair value in the secondary market needs to catch up to what the market has become.

For LPs buying secondary interests, this reinforces the value of understanding not just the reported NAV but the process quality and competitive dynamics behind any given transaction price. For GPs managing funds with active secondary market activity around their LP interests, it raises the question of whether current valuation processes adequately engage with that observable market evidence. And for the broader industry, it is another data point in an ongoing drift toward greater scrutiny of private market valuations — a trend that regulators, including the SEC Division of Examinations, are actively contributing to.

The secondary market grew up. The valuation frameworks used to assess it are still catching up.