Why secondaries are in the spotlight

Up until now a nascent part of the investment universe, the tide appears to be turning for the private credit secondaries market.

At a time when market dislocation is dampening demand and stunting growth in some private markets strategies, credit secondaries are enjoying a boost to an already bullish upward trajectory. Buoyed by liquidity demands driving activity from both limited partners and general partners, along with broad shifts in investor appetite from equity to debt and from primaries to secondaries, new entrants are lining up to get a piece of the credit secondaries pie.

The market size for closed-end private credit funds has grown to around $1.5 trillion and keeps on expanding, meaning a wider mix of debt funds in which investors are locked up for anywhere between seven to 10 years. Credit secondaries players argue that a rough rule of thumb is that 1-3 percent of private markets stock turns over each year, as investors seek to rebalance, look for liquidity and more actively manage their portfolios, suggesting sizeable room for growth.

According to secondaries firm Coller Capital, the trade in second-hand stakes of private debt funds hit $17 billion in 2022, more than 30 times the total volume in 2012.

Such volumes are piquing interest on the buyside, which has so far struggled to keep up with demand. Earlier this month, affiliate title Secondaries Investor revealed Goldman Sachs was eyeing the strategy, following hard on the heels of Ares Management and Mubadala Investment Company announcing a $1 billion tie-up for credit secondaries. Apollo Global Management is also growing its commitment to the asset class.

While LP portfolio sales dominated activity last year, Toni Vainio – a partner in Pantheon’s global private credit investment team – predicts growth will soon pick up in GP-led credit secondaries, too. “On the GP liquidity solutions side, private debt GPs have been looking at the private equity market where GP-led solutions are now almost half of the PE secondaries market and seeing a variety of ways that they might also become more active about managing their books.”

It could be the next stage of evolution for a market already garnering considerable attention. Our May 2023 edition will include extensive coverage of the private debt secondaries market – make sure to look out for it!

Write to the author at andy.t@peimedia.com