Private Credit

As portfolios mature, the requirements for portfolio management evolve. While access to attractive funds and managers is often the primary focus during the portfolio build-up phase, additional questions become increasingly important over time: How can liquidity best be managed? How should existing allocations be adjusted? And what are the most efficient ways to redeploy capital? It is precisely these needs that are driving the development of an active secondary market for private credit.

New degrees of flexibility for investors

Unlike the private equity secondary market, the private credit secondary market is still at a comparatively early stage of development. Transaction volumes have increased significantly in recent years, the number of specialized market participants continues to grow, and new transaction structures are gaining prominence. As a result, investors have access to additional tools for both managing existing portfolios and implementing new investments.

Particularly interesting opportunities may arise through GP-led transactions. Under certain circumstances, these transactions provide access to existing credit portfolios that can be thoroughly analyzed and evaluated beforehand. This eliminates the blind-pool risk associated with traditional primary funds. Investors may also benefit from faster capital deployment and earlier income generation.

Quality over transaction type

This highlights an important distinction: concepts commonly associated with private equity cannot always be applied directly to private credit. While private equity continuation transactions often focus on retaining ownership of particularly attractive assets, private credit portfolios are driven more by recurring interest income, loan repayments and the quality of the underlying financing structure. Consequently, the attractiveness of a transaction is determined not by its classification as a »secondary«, but by the quality of the underlying loans, the structure of the vehicle, the fee arrangements and the price at which the transaction is executed.

Hold, sell or invest selectivity?

From the perspective of an existing investor, there is currently little reason for broad-based sales of private credit positions. In the absence of liquidity needs, holding loans to maturity and collecting the associated income is often the more economically attractive option. Nonetheless, individual secondary opportunities can provide compelling exit options.

New private credit secondary funds are actively seeking investment opportunities and, in some cases, are offering terms that may make a sale economically attractive for existing investors. Continuation vehicles are particularly relevant in this context. Where existing investors receive an attractive offer, selling may be preferable to maintaining the position.

On the buy side, however, a highly selective approach is required. Particularly attractive opportunities may emerge through GP-led and bilateral transactions with managers that have long-standing relationships and whose investment approach and portfolios are well understood. In established portfolios, the underlying loans can be analyzed in detail, and transactions can be structured to meet the specific requirements of institutional investors. Conservative structures and a clear alignment of interests remain essential prerequisites.

For existing portfolios, this results in two distinct ways of engaging in the secondary market: the targeted sale of positions where compelling continuation vehicle offers are available, and the selective acquisition of analyzable GP-led opportunities. The secondary market itself does not create value. Value arises from the ability to assess pricing, portfolio quality and transaction structure appropriately from either a buyer’s or seller’s perspective.

For further information, please contact your client relationship manager.