Private Credit Secondaries: From Niche Strategy to Core Portfolio Tool

The topic of secondary markets is controversial. On the one hand, secondaries are a crucial source of liquidity for each limited partners (LPs) and general partners (GPs) in private markets. On the opposite hand, their growth can signal poor exit opportunities.

In the private credit space, “secondaries” refers back to the buying and selling of existing fund holdings or loan portfolios – effectively a resale market that enables investors to rebalance exposures and release liquidity before the fund’s maturity. Once a small part of personal markets, secondaries have develop into a necessary portfolio management tool. Higher rates of interest increase returns but additionally slow recent deal activity and lengthen fund maturities, resulting in a tightening of liquidity in private loans.

For institutional allocators, the query isn’t any longer whether a personal credit secondary market will emerge, but reasonably how quickly it can scale and reshape pricing.

In the private credit space, secondary credit currently represents only one% to three% of total allocations – a small portion of the asset class. But they’re growing quickly, doubling from $6 billion in 2023 to $11 billion in 2024. Evercore projects an extra increase of roughly 70% to $18 billion this 12 months. Still private Loans accounted for lower than 10% of total secondary market volume in 2024.

The rapid growth is because of several aspects: First and foremost, the explosion in primary private credit assets, which have doubled since 2018. Another reason is the present macroeconomic conditions. Higher rates of interest are attractive to yield-hungry investors who profit from the typically variable rates of interest of direct lending transactions. A high rate of interest environment also dampens the flow of recent business for direct lenders, contributing to slower fund liquidation.

In particular, the rise of secondaries is making a dedicated investor base whose capital is specifically earmarked for these transactions. Because of the wide selection of personal lending options – from consumer and direct loans to specialty financing – some investors use secondary lending as a risk mitigation tool to have interaction in area of interest lending strategies.

How do secondaries work?

Sales of LP shares (historically most secondary loan transactions in the non-public loan space) are typically made on to a secondary buyer. Discounts vary, but are typically lower for early-stage diversified fund positions and better for lower-end or highly concentrated fund positions. Transactions initiated by the GP include continuation vehicles – newly created vehicles that purchase a loan portfolio from a legacy fund. Continuation vehicles are a preferred GP-led vehicle for recapitalizing loan portfolios and providing liquidity to investors. Continuation vehicles are increasing in volume and frequency, surpassing LP-led transactions in 2025. They have recently come under scrutiny for allegedly “putting things off.”

One positive development that distinguishes private credit secondaries from private equity secondaries (PE) is the tightening of discounts. Average bids for high-quality debt funds and loans have increased from about 90% of net asset value a number of years ago by the mid-Nineties to roughly 100% of fair value in 2024-2025. The gap to PE reflects the return cushion – buyers earn returns from day one, reducing uncertainty and targeting returns within the low teens (e.g. an 8% to 10% coupon at 90% to 95% of NAV) – in addition to variable rates of interest, which potentially reduce risk and reduce volatility.

In secondary personal loan transactions, the parties typically negotiate payment terms – often with deferred structures resembling 20% of the NAV upfront and 80% later to enhance the IRR – in addition to the way to allocate accrued fees and determine which party will receive interest accrued between the reference date and shutting.

Liquidity solutions and market innovation

One notable development is the rise of evergreen and semi-liquid vehicles that funnel capital into private credit secondary markets. In 2024-2025, several large secondary firms have launched funds targeting this Wealth management channel. They are structured as interval or tender offer funds and supply periodic liquidity. They mix flexibility with the aim of expanding the investor base, especially private wealth customers who’re on the lookout for income and protection against losses. This democratization reflects not only increasing investment demand, but additionally a gradual easing of regulation in lots of countries, which now allows greater access to non-public markets through vehicles with defined liquidity characteristics.

In addition – and this is maybe probably the most interesting thing – platforms and data services are emerging. In the non-public lending space, some firms are exploring trading platforms (“marketplaces” could be a greater word) for loan portfolios. There isn’t any dominant exchange, but over time technology could make secondary transactions more efficient and transparentperhaps through some type of standardization. The word “blockchain” involves mind, but at this point it’s a stretch.

The market structure – originally dominated by one-off LP sales – is now increasingly characterised by GP-led restructuring and progressive liquidity solutions. Growth drivers resembling private credit expansion, investor liquidity demand and a positive rate of interest environment suggest that secondary markets will play a critical role in the long run and should develop into increasingly vital Annual volume of over 50 billion US dollars.

Expect recent market entrants – including specialist funds and crossover investors – in addition to greater convergence between secondary markets as integrated platforms include private equity, credit and real assets. Standardization and transparency are also more likely to increase as volumes increase.