The concept of private credit secondaries has evolved from a niche investment strategy to a critical component of institutional portfolios. These markets provide essential liquidity for both limited partners (LPs) and general partners (GPs) in private equity. However, the growth of this sector may indicate a lack of viable exit strategies for investors.
In private credit, secondaries typically involve the transaction of existing fund interests or loan portfolios. This creates a marketplace where investors can adjust their exposures and access liquidity before a fund reaches maturity.
Once considered a minor segment of private investing, secondaries are now recognized as vital tools in portfolio management, particularly in today’s economic climate.
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Market dynamics driving secondary transactions
The current landscape for private credit secondaries indicates they account for approximately 1% to 3% of total allocations within the asset class. Although this is a relatively small fraction, the sector is experiencing rapid growth, projected to rise from $6 billion in 2025 to $11 billion in 2025, according to forecasts by Evercore. The projection suggests this figure may reach about $18 billion in 2025. Notably, the overall volume of private credit represented less than 10% of the total secondary market in 2025.
Several factors contribute to this growth. A primary driver has been the significant increase in assets under management (AUM) within primary private credit markets, which have doubled since 2018. Additionally, the current macroeconomic climate, characterized by higher interest rates, has attracted investors seeking yield. This environment favors floating rate instruments typical in direct lending while slowing new deal origination.
The emergence of specialized investors
As the secondary market for private credit expands, a dedicated base of investors is forming, specifically targeting these transactions. This group reflects diverse opportunities within private credit, spanning various sectors, including consumer lending and specialty finance. Investors increasingly utilize secondaries as a means of risk mitigation, allowing them access to specialized credit strategies.
Transaction types and pricing structures
Historically, the majority of secondary transactions in private credit have involved the sale of LP interests directly to secondary buyers. These transactions often feature varying discounts, typically lower for diversified fund positions and higher for those that are either at tail-end or highly concentrated. Another significant transaction type initiated by GPs is the continuation vehicle, which acquires a portfolio of loans from an older fund. This method has gained traction as a favored strategy for GPs seeking to recapitalize portfolios while providing liquidity to investors. The volume of continuation vehicles has notably increased, surpassing LP-led transactions as of 2025, although they face scrutiny for potentially delaying necessary exits.
Another encouraging trend in the private credit secondary market is the narrowing of discounts, indicating market maturation. Average bids for quality credit funds and loans have risen from around 90% of net asset value (NAV) a few years ago to the mid-90s, with some reaching nearly 100% of fair value by 2025. This shift contrasts with the private equity sector, largely due to the yield cushion that private credit provides, enabling buyers to earn income from the outset, thus reducing uncertainty and targeting higher returns.
Innovations and future outlook
Negotiation terms in private credit secondary transactions can be complex, often involving deferred payment structures where only a fraction of NAV is paid upfront. This allows for enhanced internal rates of return (IRR) for investors. Additionally, the rise of evergreen and semi-liquid vehicles is noteworthy, as several secondary firms have launched funds aimed at wealth management clients. These funds are structured to provide periodic liquidity while catering to the needs of private investors seeking both income and downside protection.
As the market continues to evolve, trading platforms designed to facilitate secondary transactions are emerging. While no dominant exchange has yet been established, advancements in technology may lead to more efficient and transparent processes in the future. Concepts such as blockchain could potentially standardize these transactions, although this remains speculative.
By late 2025, the private credit secondaries market is expected to expand significantly, with transaction volumes reaching unprecedented levels. The transition from predominantly one-off LP sales to a landscape characterized by GP-led restructurings and innovative solutions underscores the growing relevance of secondaries within the investment community. Continued growth in private credit, heightened demand for liquidity, and favorable interest rates suggest that secondaries will remain pivotal components of investment strategies, potentially exceeding $50 billion in annual volume in the coming years.
