The landscape of private credit secondaries is evolving rapidly, capturing the attention of both seasoned investors and newcomers. These markets serve as vital components for liquidity, offering unique opportunities for limited partners (LPs) and general partners (GPs) to manage their investments effectively. However, the growth of the secondaries market may also highlight underlying challenges in exit strategies within the private credit sector.
In private credit, the term secondaries refers to the trading of existing fund interests or loan portfolios.
This marketplace enables investors to adjust their exposure and gain liquidity before fund maturity. Once viewed as a niche segment, secondaries have become crucial for portfolio management, particularly as economic conditions shift, with higher interest rates boosting yields while slowing down new deal activities.
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Growth trajectory of private credit secondaries
The allocation of private credit secondaries remains modest, accounting for approximately 1% to 3% of total investments in the asset class. Despite this small percentage, projections indicate a significant upward trend. Evercore anticipates an increase from $6 billion in 2025 to an impressive $11 billion in 2025. Furthermore, estimates suggest a rise to around $18 billion in the coming years. Nonetheless, private credit continues to represent less than 10% of the overall secondary market volume.
Factors driving the expansion
The burgeoning private credit secondaries market can be attributed to several key factors. Notably, the rapid increase in primary private credit assets under management (AUM), which have doubled since 2018, plays a significant role. Additionally, the current macroeconomic environment, characterized by higher interest rates, attracts investors seeking yield, particularly from floating rates associated with direct lending.
The constrained flow of new deals for direct lenders has led to prolonged fund durations, tightening liquidity across the market. Consequently, a dedicated base of investors is emerging, with funds specifically allocated for secondary transactions, allowing them to diversify their portfolios and mitigate risks in niche credit strategies.
Transaction dynamics within private credit secondaries
Historically, the sale of LP interests has constituted the majority of transactions in private credit secondaries, typically occurring directly with secondary buyers. Discounts associated with these sales can vary, generally being lower for early-stage diversified fund positions while remaining higher for tail-end or heavily concentrated holdings. Moreover, transactions initiated by GPs, such as continuation vehicles, have gained popularity. These newly established vehicles acquire loan portfolios from older funds, providing liquidity to investors while enabling GPs to recapitalize.
Market trends and innovations
The volume and frequency of continuation vehicles are expected to surpass LP-led transactions by 2025, raising questions about their long-term implications, particularly regarding the potential deferral of existing portfolio issues.
Another significant trend is the narrowing of discounts in private credit secondaries compared to private equity (PE) secondaries. Average bids for quality credit funds have risen from around 90% of net asset value (NAV) a few years ago to the mid-90s, occasionally reaching parity with fair value in 2025. This positive shift is largely due to the yield advantage that buyers gain from credit funds, as they begin earning income from day one, reducing uncertainty and enhancing the potential for attractive returns.
In these transactions, parties often negotiate payment structures, including deferred payments that may involve paying a portion of NAV upfront while deferring the remainder to improve internal rate of return (IRR). Additionally, determining the allocation of accrued fees is a common aspect of these negotiations.
The future of private credit secondaries
The rise of evergreen and semi-liquid vehicles is noteworthy, as they channel capital into private credit secondaries. Major firms are launching funds aimed at wealth management clients, structured to provide periodic liquidity through interval or tender-offer formats. This development responds to increasing investment demand and aligns with the gradual easing of regulations that facilitate broader access to private markets.
In private credit, the term secondaries refers to the trading of existing fund interests or loan portfolios. This marketplace enables investors to adjust their exposure and gain liquidity before fund maturity. Once viewed as a niche segment, secondaries have become crucial for portfolio management, particularly as economic conditions shift, with higher interest rates boosting yields while slowing down new deal activities.0
In private credit, the term secondaries refers to the trading of existing fund interests or loan portfolios. This marketplace enables investors to adjust their exposure and gain liquidity before fund maturity. Once viewed as a niche segment, secondaries have become crucial for portfolio management, particularly as economic conditions shift, with higher interest rates boosting yields while slowing down new deal activities.1
