Private equity managers pride themselves on being able to spy a market. Everything is tradable, for a price, and with judicious applications of debt.

When it comes to their own stakes in these funds, private equity investors have been increasingly embracing the same spirit: buying and selling their commitments to back buyouts as if it is any other market.

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In the first half of this year, investors traded $21bn of so-called ‘secondary’ stakes in alternative investments, according to Setter Capital, an adviser in the market, with private equity funds accounting for $16bn of this volume.

“The market has almost tripled in size in five years, which is enormous growth for any market,” adds Sunaina Sinha, the founder and managing partner of Cebile Capital, also an advisory firm.

It is also unusual: this market is growing right in the middle of what is generally viewed as a rarefied asset class held for the long-term.

Investors traditionally lock up their capital in private equity funds as ‘limited partners’ for the several years often required to bring leveraged buyouts of companies to fruition. They cannot exit without a manager’s permission.

Yet in one milestone last month, Palamon, a UK-based firm, led a deal in which all of its existing backers were allowed to sell to new investors, in a single transaction.

The deal was notable both for cutting through red tape often involved in secondary deals, and for why Palamon arranged the deal.

Many of its investments, such as Towry, a wealth management group, are still growing strongly as Palamon’s funds reach maturity. New backers would allow the group to extend its investments.

This is a long way from the secondary market’s original raison d’etre a few years ago.

“The secondary market was a last-chance saloon for liquidity,” says Gregg Kantor, of Investec’s private equity fund finance team. “There was a limited pool of buyers, and sellers didn’t want to be there.”

After the financial crisis, many sellers put their stakes on the secondary market because they needed cash or were banks, required to get out of illiquid equities by regulations.

“That changed as sellers became less forced,” Mr Kantor adds. “You’re starting to see the evolution of a proper market rather than this dirty place you went to at the middle of the night.”

This in part reflects years of growing allocations by pension funds, insurers and endowments to private markets, as returns fell in more public ones.

Investors estimate the net asset value of private equity funds worldwide at about $1.3tn. Hundreds of billions of dollars more is committed to newly-raised funds each year.

As these investments mature, investment committees and trustees have become more brutal at paring back.

Says Ms Sinha: “Sellers are using the secondary market to get rid of managers they don’t like any more.”

“Instead of being stuck with a [manager] they no longer believe in, they no longer have to hold on for a 12-year period,” she says. “They can sell in the secondary market tomorrow morning.”

“We cover 220 active buyers, with 700 in total in the market today. Funds over €1bn are priced routinely,” Ms Sinha adds.

In lists compiled by Setter, private equity’s blue-chip, large buyout funds — such as CVC in Europe or Blackstone in the US — are most sought-after.

“If you look at the private equity market, it’s an industry. When you are in an industry, you need a secondary market,” says Vincent Gombault, head of funds of funds and private debt at Ardian.

If its secondaries are counted, Ardian is one of the world’s biggest investors in private equity today. It invested more than $10bn in the market in 2014.

Ardian uses a vast database to track the performance of thousands of companies in funds that may come up as secondaries, and speaks to hundreds of managers per quarter.

That is one sign of the complexity of valuing what are essentially buckets of illiquid equities. Pricing secondary stakes is as much art as science. Prices have also markedly increased recently, however.

Whereas buyers could once often snap secondaries up at a discount to a fund’s net asset value, they are increasingly trading at a premium. This is broadly bringing secondaries returns down to about 10 per cent.

That may partly reflect the funds likely to be sold. Many date from 2005 to 2008, according to the data provider Preqin. They are now mostly reaping cash from stable, matured investments.

“We are not playing the game of discounts. Discounts on what? The most important thing is the quality of the underlying assets,” Mr Gombault says.

“I prefer to pay a good price on good assets than a huge discount on bad assets,” he adds.

High prices are also fostering another trend: using debt to enhance returns on assets that the private equity manager has already levered up.

“A lot of secondary buyers are using leverage - that leverage is causing a lot of pricing pressure,” says Ms Sinha.

This again may reflect the maturity of portfolios. By the end of a fund’s life, companies in the fund may already be paying back debt, making leverage safer.

The question remains, though, how an enlarged secondary market will therefore respond if corporate default rates increase from their lows.

In that sense, there may yet be more to learn from how private equity managers do it.