The landscape of private credit secondaries markets is evolving, prompting discussions among investors. These markets serve as a vital liquidity source for both limited partners (LPs) and general partners (GPs). However, their rapid development may also suggest a shortage of adequate exit strategies.
In this context, the term secondaries refers to the trading of existing fund interests or loan portfolios. This market allows investors to adjust their exposure and access liquidity prior to the maturity of funds. Once considered a niche within private markets, secondaries have now become an essential tool for portfolio management. The recent increase in interest rates has raised yields but has also slowed down new deal activity, resulting in extended fund durations and tighter liquidity within private credit.
Current state of private credit secondaries
Institutional investors are shifting their focus from whether a robust secondary market for private credit will develop to how quickly it can evolve and redefine price discovery mechanisms. Presently, secondaries account for only 1% to 3% of total allocations within the private credit landscape. Nonetheless, this segment is on a rapid growth trajectory, with the market size expected to expand from $6 billion to $11 billion. According to Evercore, additional growth of approximately 70% could push this figure to $18 billion. Despite this expansion, private credit still constituted less than 10% of the total secondary market volume.
Drivers of market expansion
The swift growth of this market can be attributed to several key factors. Notably, the significant rise in primary private credit assets under management (AUM) has doubled since 2018, increasing the pool of assets available for trading. Additionally, the current macroeconomic environment, characterized by higher interest rates, has attracted yield-seeking investors who benefit from typically floating rates associated with direct lending. Conversely, elevated rates have led to a slowdown in new deals for direct lenders, resulting in delays in fund liquidations.
The increase in secondaries has also cultivated a dedicated group of investors allocating capital specifically for these transactions. This diverse range of private credit opportunities, which includes consumer lending and specialty finance, enables some investors to use secondaries as a method for risk mitigation, thereby gaining exposure to targeted credit strategies.
Transaction dynamics and pricing trends
Traditionally, most private credit secondary transactions involved LP interests sold directly to a secondary buyer. The discounts on these sales vary, typically being lower for diversified fund positions in their early stages and higher for concentrated or tail-end positions. Transactions initiated by GPs have gained popularity, particularly through the establishment of continuation vehicles. These new entities purchase loan portfolios from older funds, providing a means for GPs to recapitalize and offer liquidity to investors. As of 2025, the volume of continuation vehicles is increasingly surpassing LP-led transactions, although they face scrutiny for potentially postponing critical decisions.
Comparative analysis with private equity
A notable positive trend distinguishing private credit secondaries from private equity is the narrowing of discount rates. Average bids for high-quality credit funds and loans have improved from approximately 90% of net asset value (NAV) to the mid-90s, approaching 100% of fair value. This improvement in private credit can be attributed to the yield cushion available to buyers, who enjoy immediate income, thus reducing uncertainty and targeting returns in the low-teens range. For example, an 8% to 10% coupon at 90% to 95% of NAV exemplifies this dynamic.
In private credit secondary transactions, negotiating payment terms is common, often involving deferred structures such as 20% of NAV paid upfront and 80% later to optimize internal rate of return (IRR). The allocation of accrued fees is also critical, determining which party benefits from interest accrued between the reference date and the actual closing.
Emerging trends and future outlook
Another significant trend is the emergence of evergreen and semi-liquid vehicles that channel capital towards private credit secondaries. In the coming years, numerous prominent secondary firms are expected to introduce funds targeting wealth management, structured as interval or tender-offer funds. These vehicles offer periodic liquidity, balancing flexibility with the desire to broaden the investor base, particularly among affluent clients seeking income stability and downside protection. This trend toward democratization reflects both growing investment demand and gradual regulatory easing in many regions, allowing broader access to private markets through vehicles with defined liquidity features.
Additionally, trading platforms and data services are transforming private credit. While a dominant exchange for these transactions is yet to be established, advancements in technology may enhance the efficiency and transparency of secondary trading, potentially leading to standardization over time. The concept of blockchain technology is often discussed in this context, although its actual implementation remains speculative.
In this context, the term secondaries refers to the trading of existing fund interests or loan portfolios. This market allows investors to adjust their exposure and access liquidity prior to the maturity of funds. Once considered a niche within private markets, secondaries have now become an essential tool for portfolio management. The recent increase in interest rates has raised yields but has also slowed down new deal activity, resulting in extended fund durations and tighter liquidity within private credit.0