The Bid-Ask Spread in Private Markets Is Widening: Here’s Why

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Welcome to Unlocking Liquidity, the podcast from PrimaryMarkets that brings the dynamic world of private capital to life. Each week, we dive into the trends, opportunities and challenges shaping today's investment landscape, from emerging asset classes and market innovation through to strategies for navigating liquidity in unlisted markets. Whether you're an experienced investor, a dealmaker, or simply curious about private markets, Unlocking Liquidity offers analysis and real-world insights to help you make sense of complexity and stay ahead of what's next.

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In private markets, pricing has never been perfectly transparent. But in today's environment, the gap between what sellers expect and what buyers are willing to pay is becoming increasingly difficult to ignore. Across venture capital, private equity and secondary transactions, bid-ask spreads are widening as higher interest rates, tighter liquidity conditions and changing investor expectations reshape the market.

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In this episode of Unlocking Liquidity, we explore why valuation gaps are growing, what it means for sophisticated investors and founders, and how private companies are adapting to a market where liquidity is no longer guaranteed. We also examine the growing role of secondary trading, structured liquidity solutions and why disciplined pricing is becoming one of the defining themes of modern private capital markets.

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Private markets have long operated with an inherent valuation gap between buyers and sellers. Unlike listed equities, where continuous trading creates transparent price discovery, private assets are negotiated, subjective and often episodic in their liquidity. But over the past two years, that gap the bid-ask spread has widened materially across many segments of the private capital landscape.

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For wholesale and sophisticated investors, this widening spread is becoming one of the defining features of the modern private market cycle. It is influencing capital raising outcomes, secondary transactions, liquidity events, fund exits and portfolio construction decisions. It is also reshaping how companies think about valuation, investor access and long-term liquidity strategy.

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In Australia and globally, buyers are becoming more selective, more valuation-sensitive and more focused on downside protection. Sellers, meanwhile, are still anchored to valuations achieved during the lower-rate, growth-driven environment of 2020 through 2022. The result is a growing disconnect between what sellers believe their assets are worth and what buyers are willing to pay.

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This disconnect is not occurring in isolation. It reflects a broader repricing of risk across global markets, changing liquidity conditions, higher interest rates, evolving investor expectations and the growing maturity of secondary private markets. While some market participants expect the spread to narrow as macroeconomic conditions stabilise, others believe the current environment represents a structural shift in how private assets are valued and traded.

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In simple terms, the bid-ask spread represents the difference between the price a seller wants and the price a buyer is willing to pay. In public markets, this spread is usually narrow because trading is continuous, liquidity is deep and pricing information is transparent. In private markets, however, there is no centralised exchange, no constant order book and often very limited transaction data. Pricing is instead negotiated between counterparties, frequently based on assumptions around future growth, market conditions and comparable transactions.

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Private market assets are also inherently less liquid. Investors often commit capital for extended periods, sometimes with limited exit pathways before an IPO, trade sale or secondary transaction. This illiquidity premium has always influenced pricing, but recent market conditions have magnified the issue considerably.

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The widening spread is particularly evident in secondary transactions involving private equity interests, venture-backed companies, growth-stage technology businesses and late-stage pre-IPO assets. According to recent industry surveys, secondary market pricing friction remains one of the largest barriers to transaction execution.

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One of the primary drivers of the widening spread is the lingering effect of the ultra-low interest rate environment that defined the post-COVID investment cycle. During that period, capital was abundant, borrowing costs were minimal and investors aggressively pursued growth assets. Valuation multiples expanded rapidly, particularly in technology and venture-backed sectors. Companies were often valued on future revenue potential rather than current profitability, and liquidity expectations became increasingly optimistic.

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Many founders, early investors and private fund managers became anchored to those elevated valuations. Even as public market multiples corrected sharply from 2022 onwards, many private market participants were slow to fully adjust their pricing expectations. Buyers, however, adjusted quickly.

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Higher interest rates increased the cost of capital and changed the return thresholds required for private investments. Buyers began applying lower earnings multiples, demanding stronger cashflow visibility and placing greater emphasis on profitability and resilience. As noted in private equity outlook reporting, higher borrowing costs have reduced the amount buyers are willing and able to pay for assets, while sellers continue to seek valuations based on prior market conditions. This mismatch has become one of the central causes of widening bid-ask spreads globally.

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Interest rates are arguably the single biggest macroeconomic factor affecting private market pricing today. When rates rise, several things occur simultaneously. Discount rates increase, reducing the present value of future cashflows. Debt financing becomes more expensive, reducing leverage capacity for acquisitions. Investor appetite for risk assets softens as fixed-income alternatives become more attractive.

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In private equity and venture capital, these shifts have profound consequences. A buyer evaluating a private company in 2026 is operating in a very different capital environment compared to 2021. The expected internal rate of return required to justify an investment is now materially higher. This means buyers need lower entry valuations to achieve target returns.

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At the same time, many sellers remain reluctant to crystallise lower valuations. Some companies have delayed capital raises entirely, while others have postponed liquidity events in the hope that market conditions improve. This dynamic has reduced transaction activity in many areas of private markets while increasing pricing tension in deals that do proceed. Industry research has repeatedly highlighted wide bid-ask spreads as a major contributor to subdued private market transaction volumes over the past two years.

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Another important factor is the increasing distinction between high-quality assets and the broader market. In earlier periods of strong liquidity, many private companies could command premium valuations simply because capital was readily available. Today, investors are far more selective.

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Businesses with recurring revenue, profitability pathways, strong governance and defensible market positions continue to attract capital. Companies lacking these characteristics often face significantly more valuation pressure. This has created what many investors describe as a "barbell market." Premium assets still achieve strong pricing outcomes, while lower-quality or higher-risk assets experience materially weaker demand.

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Investor surveys indicate that competition remains intense for highly desirable assets, even while broader secondary market spreads remain wide. This increasing selectivity is widening the valuation dispersion across private markets and making pricing conversations more complex.

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The growth of secondary private market transactions is also contributing to the widening spread. Historically, private markets were largely defined by long holding periods and infrequent liquidity events. That model is evolving rapidly. Investors increasingly expect optionality, liquidity pathways and portfolio management flexibility before a traditional exit occurs.

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As a result, secondary transactions have grown substantially in both Australia and internationally. Global secondary transaction volumes reached record levels in recent years as investors sought liquidity and portfolio rebalancing opportunities. Secondaries are important because they often reveal more realistic market-clearing prices than primary capital raises.

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In many cases, buyers in secondary transactions demand discounts to the most recent headline valuation, particularly where liquidity is limited or broader market conditions remain uncertain. These discounts can expose the gap between theoretical valuations and executable pricing. Australian market participants are increasingly embracing secondary structures, continuation funds and alternative liquidity mechanisms as private markets mature. For sophisticated investors, this evolution creates both opportunity and complexity. Wider spreads may allow disciplined buyers to acquire quality assets at attractive pricing, but they also increase negotiation difficulty and execution risk.

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Australia provides an interesting case study because the local private market ecosystem is still relatively young compared to the United States or Europe, yet it is evolving rapidly. Over the past decade, Australian investors have significantly increased their exposure to private equity, venture capital, private credit and alternative assets. Superannuation funds, family offices and sophisticated investors have all become more active participants.

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At the same time, Australia has seen increasing demand for structured liquidity solutions in private markets. Secondary transactions, continuation vehicles and issuer-led liquidity programs are becoming more common as companies stay private for longer. Industry reporting suggests that deal activity in Australia may improve as financing conditions stabilise, but valuation alignment remains a critical determinant of transaction execution.

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Australian companies are also increasingly recognising that liquidity does not necessarily require a public listing. Structured secondary trading environments, investor hubs and controlled trading windows are emerging as viable alternatives for facilitating liquidity while maintaining governance oversight. This trend reflects a broader structural shift in private markets. Liquidity is increasingly being viewed not as a single event, but as an ongoing strategic capability.

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In the current environment, buyers generally hold stronger negotiating leverage than sellers. Capital may still be available, but it is being deployed more cautiously. Investors have more opportunities, greater selectivity and increased expectations around governance, transparency and pricing discipline.

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Buyers are also aware that many sellers face pressure to create liquidity. Venture funds approaching the end of their lifecycle, early investors seeking exits, employees with concentrated equity exposure and founders looking to de-risk personal holdings all contribute to increasing secondary supply.

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At the same time, buyers are demanding more structure in transactions. Preference shares, liquidation preferences, ratchets, earn-outs and other protective mechanisms are becoming increasingly common in negotiated private deals. Investor surveys show that structured capital solutions are now widely used to bridge valuation disagreements and manage downside risk. This shift further reinforces the widening spread because headline valuations alone no longer tell the full story of a transaction.

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One of the most significant outcomes of widening bid-ask spreads is the growing importance of liquidity strategy. Companies that proactively create structured liquidity pathways are often better positioned to reduce pricing friction. Transparency, governance controls, investor communication and clearly defined trading frameworks can help narrow uncertainty and facilitate more efficient transactions.

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In contrast, companies without organised liquidity frameworks may struggle to achieve consistent pricing outcomes, particularly when market conditions become more volatile. This is where issuer-led secondary infrastructure is becoming increasingly relevant in private markets.

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Platforms that facilitate structured private transactions can help improve visibility, streamline investor access and create more orderly pricing dynamics. While private market spreads may never resemble the tight spreads seen on public exchanges, greater market structure can materially improve pricing confidence and transaction efficiency. For sophisticated investors, liquidity infrastructure is becoming an increasingly important indicator of market maturity and investment quality.

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There are signs that parts of the private market may stabilise as interest rates moderate and confidence gradually returns. Some industry forecasts suggest that lower rates could narrow bid-ask spreads and improve transaction activity in coming years. However, it is unlikely that private markets will fully return to the valuation environment seen during the peak liquidity years.

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Investors have become more disciplined. Risk pricing has reset. Governance expectations have increased. The market now places greater value on profitability, execution capability and liquidity structure than pure growth narratives alone. In many ways, the widening bid-ask spread reflects a maturation of private markets rather than simply a temporary disruption.

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Private capital markets are evolving into more sophisticated ecosystems where pricing, liquidity and governance are becoming increasingly interconnected. Sophisticated investors are no longer simply chasing growth; they are evaluating liquidity pathways, transaction structure, downside protection and pricing realism with far greater scrutiny. For companies and investors alike, understanding this new environment will be critical. The private market opportunity remains significant. But liquidity, pricing transparency and valuation discipline are now central components of the investment equation not secondary considerations.

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And that brings us to the end of this episode of Unlocking Liquidity. Thanks for spending your time with us, we hope today's conversation gave you a fresh perspective on private markets and how liquidity is evolving. If you enjoyed the episode, please follow or subscribe wherever you listen, and feel free to share it with someone who'd get value from it. For more insights, opportunities and episodes, visit PrimaryMarkets.com. Until next time, thanks for listening, and we'll see you in the next conversation.